Uruguay’s Lacalle Pou Seeks $150 Million in Tax Cuts

(Bloomberg) -- Uruguay’s President Luis Lacalle Pou said Thursday he will ask lawmakers to approve $150 million in tax cuts for individuals and small businesses.

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“We are in conditions to proceed with a reduction in taxes” thanks to a growing economy and improving public finances, Lacalle Pou said in his annual address to Congress. Lower taxes will boost consumption and the economy, he said.

The government will sponsor legislation that would increase personal income tax deductions for 75% of tax payers, while about 63,000 low income workers would no longer have to pay at all. Other proposed tax changes would exempt about 20,000 people from paying a social security tax and help small businesses, he said. Lacalle Pou’s five-party coalition holds majorities in both houses of Congress.

Uruguay is bucking the regional trend of countries such as Chile, Colombia and Brazil raising or planning to raise taxes to fund greater social spending. Uruguay, a country of 3.5 million people, already boasts one of the deepest welfare states in the Americas. That fiscal largess led to unsustainable deficits even before the government splurged on pandemic stimulus.

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After surging to 5.8% in 2020, the Lacalle Pou administration reduced the deficit to an estimated 3.2% at the end of last year. The government is targeting a 2.6% deficit this year.

The proposed tax cuts equivalent to about 0.2% of GDP aren’t a significant risk to fiscal accounts, according to analysts at brokerage house Puente.

“Our fiscal concerns remain concentrated on the expected deceleration of activity that is already adding pressure on the headline fiscal balance,” the analysts wrote in a note to clients. “We do not see the announcement as negative for valuations.”

(Updates with brokerage comments on tax cuts in sixth and seventh paragraphs)

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