Since 2018, the minimum wage in Spain has increased by 61%, up from 736 euros to 1,184 euros per month on 14 payments. Photo Credit: andrey_popov/shutterstock
Spanish Minister of Labor Yolanda Diaz proposed a potential increase to Sarario Minimo (SMI) that differs depending on whether they are subject to income tax.
Diaz says that if the Ministry of Finance (Hacienda) requires SMI recipients to pay IRPF (Impuesto sobre la renta de las fisicas), it will require Spanish personal income tax. This is a progressive tax that applies to wages, salaries, pensions and other personal income, with higher minimum wage increases to offset additional tax burdens. The proposal aims to protect the purchasing power of low-income workers while ensuring compliance with financial obligations.
Context and current situation
Recent growth in minimum wages
Since 2018, the minimum wage in Spain has increased by 61%, up from 736 euros to 1,184 euros per month on 14 payments. These annual increases have become part of the government’s strategy to reduce income inequality and improve the standard of living for workers with minimum wage. Yolanda Díaz emphasizes that future adjustments need to continue to explain both cost of living and potential taxation.
The role of the Hacienda
Hacienda has not yet confirmed whether SMI is eligible for IRPF, but in the past it has taxed. If taxation applies, some of the wage increases will be directed towards taxes, which could reduce the net profit of workers. Diaz emphasizes the importance of balancing financial responsibility with social equity, and aims to increase to maintain workers’ purchasing power.
Proposed measures
Expert consultation
To determine the appropriate adjustments, Díaz convened a panel of experts to advise on SMI. Their role is to calculate the rise that takes into account both the cost of living and the potential tax effect. The government is trying to ensure that, if applied, the impact of the IRPF is properly offset. The Spanish government can approve the increase in SMI by the statute without requiring parliamentary approval. However, the Employers Association is not part of the expert panel and is opposed to historically specific proposed rises. The last increase supported by business organizations was January 2020.
The broader meaning
Protecting purchasing power
Diaz’s plan highlights the challenge of protecting the standard of living for low-income workers while adhering to tax regulations. Higher minimum wages in the case of taxation will maintain net profit levels and prevent real wages from being reduced due to fiscal obligations.
Social and economic balance
The initiative reflects the government’s broader goal of combining social equality with economic responsibility. By preemptively adjusting SMI for potential IRPF impacts, Spain aims to ensure that wage policies continue to support vulnerable workers without compromising tax law compliance.
