Since 2018, Spain’s minimum wage has increased by 61%, rising from €736 to €1,184 per month in 14 payments. Photo credit: Andrey_Popov/Shutterstock
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. It is a progressive tax applied to wages, salaries, pensions, and other personal earnings , the minimum wage rise will be higher to offset the additional tax burden. The proposal aims to protect the purchasing power of low-income workers while ensuring compliance with fiscal obligations.
Context 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 annual increases have been part of the government’s strategy to reduce income inequality and improve living standards for workers on the lowest pay. Yolanda Díaz has emphasised that future adjustments must continue to account for both the cost of living and potential taxation.
The Role of Hacienda
Hacienda has not yet confirmed whether the SMI will be subject to IRPF, though it has applied taxation in past cases. If taxation is applied, a portion of the wage increase will go toward taxes, potentially reducing the net benefit for workers. 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. Their role is to calculate a rise that considers both the cost of living and potential taxation effects. The government seeks to ensure that any increase adequately offsets the impact of IRPF if applied. The Spanish government can approve SMI increases via decree, without requiring parliamentary approval. However, employer associations are not part of the expert panel and have historically disagreed with certain proposed rises. The last increase supported by business organisations was in January 2020.
Wider Implications
Protecting Purchasing Power
Díaz’s plan highlights the challenge of safeguarding low-income workers’ standards of living while adhering to tax regulations. A higher minimum wage in the event of taxation would maintain net income levels and prevent the reduction of real wages due to fiscal obligations.
Social and Economic Balance
The initiative reflects the government’s broader goal of combining social equity with economic responsibility. By pre-emptively adjusting the SMI for potential IRPF implications, Spain aims to ensure that wage policy continues to support vulnerable workers without compromising compliance with tax laws.
