NEW GOC BUDGET ORIENTED TOWARDS SOCIAL SECTOR

UNCLAS SANTIAGO 002063 SIPDIS UNCLASSIFIED SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON PREL ELAB CI SUBJECT: NEW GOC BUDGET ORIENTED TOWARDS SOCIAL SECTOR l. (U) Summary. The GOC budget, the first of President Bachelet's government, will be officially released October 3. The GOC Budget Bill shows an 8.9 percent increase in public spending, the largest increase in 10 years. Almost 70 percent of the 2007 budget proposal goes to social spending. Labor, education, health and housing are the priority sectors for Bachelet's administration, and they will receive more than half of the resources assigned for public spending. End Summary. ¶2. (U) Minister of Finance Andres Velasco sent the 2007 Budget Bill to Congress for its discussion and approval on September 30. MOF Velasco will formally present the bill to the Finance Committee of the Chamber of Deputies on October 3. Official announcement is expected to immediately follow his presentation. Meanwhile, Deputy Lorenzini, Chairman of the Finance Committee, announced to the local press the main aspects of the 2007 Budget Bill. SIGNIFICANT BUDGET INCREASE -------------- ¶3. (U) The political sector, including ruling coalition Concertacion members, and even some members of the opposition, had been pushing for a 10 percent increase in public spending because of the income generated by high copper prices. While the 8.9 percent increase reflected in the 2007 budget is shy of that goal, it is the highest increase since 1996 when public spending grew 12.8 percent. Public spending in the 2007 Budget Bill totals USD 34.9 billion. Per capita spending for 2007 increased to a historical record totaling CH$783,882, about USD 1,500, a 3.67 percent increased over the previous budget. BENEFITS THE SOCIAL SECTOR -------------- ¶4. (U) Headlines in Chile's three main papers observed that the new budget presented to Congress is dominated by social spending. Almost 68 percent of the 2007 budget goes to social public spending. Labor, education, health and housing are the priority sectors for Bachelet's administration and they are receiving more than half of the resources assigned for public spending. ¶5. (U) Labor, Education and Health are the leading sectors in the funding plans of the GOC's 2007 budget. The funds assigned to these sectors focus on financing pension reform, improvement of the education system, and the 16 new medical pathologies to be included within the coverage offered by the public health care program (AUGE). Labor represents 20 percent of the proposed 2007 budget, totaling USD 6.9 billions, an increased of 3.2 percent over the previous budget. The education budget increased by 10.6 percent and, at USD 5.2 billion, constitutes 15 percent of public spending for 2007. Total spending on health, about 6 percent of the budget, would increase 12.4 percent to $2.1 billion. OTHER SECTORS -------------- ¶6. (U) Public spending in defense for 2007 will total USD 1.9 billion of the GOC budget, but this sector also receives an additional USD 833 million in funds from the Copper Reserved Law, which assigns 3 percent of copper profits to the armed forces. The Ministry of Public Works will get a 17.1 percent funding increase, bringing its total to USD 1.7 billion, or 5 percent of public spending. The Ministry of Housing and Urban Development increased its resources by 12.4 percent though its USD 1.1 billion budget only represents 3 percent of total appropriations. About USD 139 million will be devoted to the construction of 135 new subsidized houses, an 18.2 percent increase compared to 2006. ¶7. (U) The 2007 Budget Bill is predicated on a 2007 GDP growth of 5.7 percent, an international price of copper at USD 1.21 per pound (far below today's price of USD 3.44) and a fiscal surplus of 4.4 percent of GDP. COMMENT -------------- ¶8. (U) The increase in public spending remains lower than what was expected by most actors in the political sector. Expectations notwithstanding, President Bachelet's 2007 Budget is the most expansive put together by any of the four Concertacion governments since 1990. President Bachelet's budget for 2007 focuses on the four main pillars of her administration as stated during her campaign and her May 21 State of Union Speech: social protection, education, better housing programs, and innovation and competitiveness (through labor and public works). KELLY