Spain’s recent minimum wage increase to €1,184 per month was meant to help low-income workers, but a decision by the tax authorities is reducing its impact. Because the government has not adjusted the income tax (IRPF) threshold, many workers who previously didn’t pay tax on their wages will now see deductions from their salaries.

Workers Won’t Receive the Full Increase

The rise of €50 per month (€700 annually) is a welcome boost on paper, but for many workers, the actual benefit will be lower. Due to income tax deductions, a full-time minimum wage worker could lose around €300 per year in taxes, meaning they will only see about €400 of the €700 increase in their pocket. Until now, minimum wage earners were exempt from income tax, but this year, the tax agency has decided not to adjust the exemption level, meaning a significant number of workers will now have to pay.

Political Disagreement Over the Decision

The decision has caused division within the Spanish government. Labour Minister Yolanda Díaz has argued that minimum wage earners should remain exempt from IRPF to ensure they fully benefit from the increase. Meanwhile, Finance Minister María Jesús Montero insists that all workers should contribute taxes, including those earning the minimum wage. The issue has also sparked political debate, with parties like Sumar and Podemos pushing for a change to the law, while PSOE maintains that all salaries should be taxed equally.

Unions Call for Fairer Taxation

Labour unions have criticised the move, arguing that raising the minimum wage should go hand in hand with reducing the tax burden on low-income workers. Instead of taxing those on the lowest wages, they suggest that the government should focus on tackling unpaid overtime and ensuring large companies pay their fair share.

Will the Government Backtrack?

For now, there is no indication that the Finance Ministry will reverse its decision. However, if political pressure grows, it’s possible that changes could be introduced to adjust the tax threshold and prevent low-income workers from seeing their wage increase reduced by tax deductions.

For those affected, the debate raises a crucial question: Is a wage increase truly beneficial if much of it is lost to taxation?

Main image: lamoncloa.org