The Government has proposed a higher wage amid tax controversy

The Spanish Minister of Labour, Yolanda Díaz, has proposed a potential increase to the Salario Mínimo Interprofesional (SMI) that would vary depending on whether it becomes subject to income tax.

Díaz has stated that if the Ministry of Finance (Hacienda) requires SMI recipients to pay IRPF (Impuesto sobre la Renta de las Personas Físicas), Spain’s personal income tax. This progressive tax applies to all personal earnings, including wages, pensions, and salaries. To offset this additional tax, the minimum wage increase will be greater. The proposal aims at protecting low-income workers’ purchasing power while complying with fiscal obligations.

Contextual and Current Situation

Minimum Wage Growth in Recent years

Since 2018, Spain’s minimum wage has increased by 61%, rising from €736 to €1,184 per month in 14 payments. These increases were part of a government-led strategy to reduce income inequalities and improve the living standards of workers at the lowest wage. Yolanda Díaz has emphasised that future adjustments must continue to account for both the cost of living and potential taxation.

Haciendas: Their role

Hacienda still hasn’t confirmed whether SMI is subject to IRPF. It has, however, taxed SMI in the past. Taxation will reduce the net benefit to workers if it is implemented. Díaz has stressed the importance of balancing fiscal responsibilities with social fairness, aiming for a rise that maintains workers’ purchasing power.

Proposed Measures

Expert Consultation

To determine an appropriate adjustment, Díaz has convened a panel of experts who advise on the SMI. They are responsible for calculating a rise which takes into account both the cost-of-living and possible taxation effects. The government wants any increase to be able to offset the impact IRPF, if applicable. The Spanish government is able to approve SMI increase by decree, without the need for parliamentary approval. However, the employer associations do not form part of the expert committee and have in past disagreed with some proposed increases. The last time business organisations supported a wage increase was in January of 2020.

More Wide-reaching Implications

Purchasing Power Protection

Díaz’s plan highlights the challenge of safeguarding low-income workers’ standards of living while adhering to tax regulations. If taxation were to occur, a higher wage minimum would prevent real wages being reduced by fiscal obligations and maintain net income.

Balance Social and Economic

The initiative is part of the government’s larger goal to combine social equity and economic responsibility. Spain’s goal is to maintain wage policies that support vulnerable workers, without compromising tax compliance.