Bachelet proposes tax reforms in Chile

President Michelle Bachelet sent Chile's Congress a bill Monday that would raise corporate taxes to fund a sweeping overhaul of the country's education system.

The proposed reform aims to raise $8.2 billion to fund tuition-free public universities, a demand that fueled massive student protests under Bachelet's conservative predecessor Sebastian Pinera.

Bachelet, a socialist who took office on March 11 for her second, non-consecutive term, said it was "the beginning of one of our government's most important reforms, along with education reform and a new constitution."

If passed, as seems likely, the bill would raise the corporate tax rate from 20 to 25 percent by 2017 and eliminate a deferment on taxes on reinvested earnings.

However, it would also lower the top tax rate for individuals from 40 to 35 percent. Salaries of $10,500 or more a month would be taxed at the highest rate.

"The objective behind this measure is to give more equitable tax treatment to income from work in relation to income from capital," Bachelet said.

It comes at a time when the Chilean economy is experiencing slowing economic growth as a result of falling copper prices and declining investment.

Business groups have expressed concern about creating disincentives to investment.

But Bachelet insisted growth would not be hurt by the reforms and that a healthy economy required an equitable society that strengthens its human capital and creates high quality institutions.

"The (tax) is meant to have a political, ideological and public relations impact in terms of showing that all the traces of the Pinochet era are being erased in Chile's institutions, political and economic," said University of Chile analyst Guillermo Holzmann.

Bachelet has promised to usher in free university education in six years, while improving the quality of public education and ending a system dominated by private, for-profit schools.

The Central Bank, meanwhile, announced it was lowering Chile's projected growth rate for 2014.

The 3.75-4.75 percent rate that was forecast was revised doward to between three and four percent amid weak Chinese demand, the bank said.