Chile's lower house approves the base text of President Kast's flagship economic bill as Chile's GDP growth outpaces the region

Summary

Chile's Chamber of Deputies voted on 20 May 2026 to approve the base text of President José Antonio Kast's Pacto Fiscal, the flagship economic reform package of his administration. Kast, who took office in March 2026 after defeating Gabriel Boric's preferred successor in the December 2025 election, framed the bill in an April Bloomberg interview as the central instrument for sustaining 3-4% annual GDP growth. Chile's economy grew 3.5% in 2025, above the Latin American average, which Kast has cited as evidence that the policy direction he inherits, combined with his proposed deregulation, can produce sustained above-average regional growth. The Pacto Fiscal contains provisions on tax simplification, labour market flexibility, and a reduction in public sector size. The 20 May lower house vote on the base text is a procedural first step: the bill must pass detailed committee review and then both the Chamber and Senate in final form before promulgation. Left-wing opposition parties and the Central Unitaria de Trabajadores (CUT) union federation have opposed the labour flexibility provisions. The bill is being developed alongside a separate reform to Chile's lithium sector that reduces state involvement compared to the approach taken under Boric.

The split

Kast and the centre-right and hard-right majority in Congress argue that the Pacto Fiscal is necessary to improve Chile's investment climate, reduce the regulatory burden that constrained growth in the Boric years, and attract foreign capital into mining and technology sectors. The right-wing frame is that Chile's 3.5% 2025 growth is a floor, not a ceiling, and that labour flexibility and tax simplification can lift it to 4% or above. The left-wing opposition, centred on the Frente Amplio and socialist parties, argues that the labour flexibility provisions weaken worker protections and transfer rents from labour to capital without commensurate investment commitments. The CUT has indicated it will call a general strike if the most contentious labour provisions are not modified in committee. The centre-left Christian Democrats and some independent senators are positioned as swing votes in the Senate, making the bill's final form uncertain even after the lower house base text approval.

By the numbers

• 3.5%, Chile GDP growth in 2025 (above Latin American average)
• 3-4%, Kast's stated GDP growth target for Chile under the Pacto Fiscal
• 20 May 2026, date the Chamber of Deputies approved the Pacto Fiscal base text
• March 2026, date Kast took office following his December 2025 election victory

Why it matters

Kast's election and the Pacto Fiscal represent the most significant rightward shift in Chilean economic policy since the 1990s democratic transition. Chile is South America's highest-income economy and a critical minerals hub; how it structures labour markets, taxation, and state involvement in lithium and copper will shape investment flows across the region. The Pacto Fiscal's passage or failure will test whether Kast's congressional majority is sufficient to govern on economic policy, or whether the Senate creates a veto point that fragments the reform agenda. For international investors, the signals that emerge from the committee process will determine whether Chile's investment regime shifts materially or the reform is diluted to passage. The parallel lithium reform, which reduces the Boric-era push for state-led lithium extraction, will link the Pacto Fiscal to the critical minerals supply chain debate.

What to watch

• Whether the Pacto Fiscal clears the detailed committee review and Senate without fatal amendments to its tax or labour provisions.
• Whether the CUT general strike threat materialises and how Kast responds.
• Whether Chile's GDP growth holds at 3.5% or above through H2 2026 as the reform is debated.
• Whether the lithium sector reform and the Pacto Fiscal are bundled or proceed on separate legislative tracks.