March 19, 2020

President Piñera announces an Economic Emergency Plan to protect earnings, employment and SMEs

President Piñera announces an Economic Emergency Plan to protect earnings, employment and SMEs
The measures presented by the President include reinforcing the health system budget, laws to protect employees' earnings and jobs, and taxation measures to help small and medium-sized enterprises to survive the COVID-19 health emergency.

On Thursday President Sebastián Piñera presented an injection of US$11.75 billion directed at businesses and families, to mitigate the economic impact of the global COVID-19 pandemic.

The plan will strengthen the health system budget to ensure that it has sufficient resources, protect the earnings of employees who are sick or require preventive isolation, support the most vulnerable groups in Chile, protect jobs, support businesses by postponing tax payments, and strengthen the supply of credit with an emphasis on individuals and smaller businesses.

“We want to continuously support you and be alongside you, because we are well aware that in these difficult times what we most need is unity,” the President said at a ceremony in La Moneda Palace. He was accompanied by Treasury Minister Ignacio Briones, and the Ministers of Economy, Employment, Mining, Public Works, Transport, Energy, Environment, Agriculture and Housing.

The plan encompasses a package of extraordinary measures, which will mobilize Treasury resources equivalent to almost 4.7% of GDP over the coming months.

This plan contains three principal aims:

1. Strengthen the health system budget

The Public Health Budget will be supplemented by a 2% constitutional budget to cover expenditure arising from the health emergency. These resources are in addition to the special fund announced last weekend.

2. Protect the earnings of Chilean families

A series of measures will be promoted with the sole aim of protecting the earnings of Chilean families:

a. The "COVID-19" Bill will protect earnings. Earnings will be guaranteed for employees who are required by the emergency to remain at home, but are unable to work remotely using teleworking techniques. This guarantee will apply when: (a) they have reached a mutual agreement with their employer; (b) there is a mandatory instruction from the health authority. Provided these conditions are met, such an employee will receive their earnings from unemployment insurance, in accordance with current regulations. However, their employment contract will continue, as will all their employment rights, and the employer must continue to pay their healthcare and retirement contributions. This will be financed by injecting up to US$2 billion into the Unemployment Solidarity Fund.

b. Urgently process the Employment Protection Bill. The employment protection bill will be scheduled for immediate discussion. This bill is designed to reduce working hours, while compensating for the corresponding decrease in remuneration, using resources from the Unemployment Solidarity Fund.

c. COVID-19 Bonus. A bonus will be provided equivalent to the Single Family Subsidy (SUF), which will benefit 2 million people without formal employment. This will be financed with resources of US$130 million.

d. Solidarity Fund to face the crisis. A Solidarity Fund will be created totaling US$100 million to resolve social emergencies as a result of declining sales.

3. Protect jobs and the companies that provide them

Taxation measures

a. Suspend provisional monthly payments (PPM) of corporate income tax for the next 3 months. This measure will increase the cash resources of 700,000 companies. It requires committing resources of up to US$2.4 billion over the next 3 months.

b. Postpone VAT payments for the next 3 months, for all companies with sales under UF350,000*, and allow them to pay in 12 monthly installments at an interest rate of 0%. (*A UF is an index-linked unit of account, currently worth around US$33) This will inject liquidity of up to US$1.5 billion into 240,000 companies during the second quarter.

c. Postpone corporate income tax payments for SMEs until July 2020, as calculated in their annual declarations scheduled for submission in April. This will release cash resources of US$600 million for 140,000 SMEs.

d. Postpone property tax payments in April for companies with sales under UF350,000 and for individuals owning properties with a taxation value of under 133 million Chilean pesos (around US$154,000). Payment of this property tax can take place at any time of the year at an interest rate of 0%. This involves mobilizing resources of US$670 million. The Treasury will compensate municipalities for any transitory fall in revenue.

e. Temporary reduction of stamp duty to 0% for all loan transactions during the next 6 months. This will reduce the cost of financing for families and businesses. This measure will cost the Treasury up to US$420 million.

f. Relief measures for tax owed to the Treasury that focus on SMEs and individuals with low earnings: i) flexibility to negotiate agreements to repay tax debts to the Treasury, without interest or fines; ii) temporary suspension of judicial collection proceedings and auctions of property to collect tax debts.

g. Every expense incurred by companies to address this health emergency will be accepted as tax allowable expenditure.

Other liquidity measures for SMEs:

a. Acceleration of payments to State suppliers: At the beginning of April, all invoices issued to the State and pending payment will be paid immediately. This will inject immediate liquidity of approximately US$1 billion. Furthermore, all invoices issued to the State thereafter will be paid within 30 days, valued at US$500 million per month. This is the first stage of the centralized payment agenda. 

b. Capital increase of Banco Estado of US$500 million These resources will be mainly used to provide financing for individuals and SMEs. This measure will increase Banco Estado's ability to lend by approximately US$4.4 billion.