Clash between Sumar and the PSOE over taxation of the minimum wage

Madrid / BarcelonaNever before has an increase in the minimum interprofessional wage (SMI) generated a clash between the two partners of the coalition government, PSOE and Sumar, such as the one experienced in the last few hours. But what has unleashed the squabble has not been the increase in the SMI for 2025 – 50 euros per month, up to 1,184 euros gross – but the decision of the Ministry of Finance (PSOE), under the leadership of María Jesús Montero, not to adapt the minimum exemption in personal income tax to the increase in salary. The measure implies that for the first time a part of the people who receive a salary have to pay personal income tax, something that the Minister of Labor and leader of Sumar, Yolanda Díaz, has been quick to censure: "I learned of the decision [of the Treasury] through the media and it has not been deliberated [in the council of ministers]," she declared.

In this way, the Minister of Labour wanted to make it clear that the decision was taken unilaterally by the PSOE. In fact, she has even threatened to revoke the measure through an initiative in the Congress of Deputies – Sumar has announced that it will present a bill in the Spanish lower house to correct the Treasury and Díaz has defended it. The tension at the table of the Council of Ministers, where Díaz sat next to the spokesperson of the Spanish government, Pilar Alegría (PSOE), has been evident, despite the fact that the latter has wanted to play down the issue and has stressed that "the topic of the day" was the increase in the SMI.

"Of course there is a need to do fiscal pedagogy in Spain, but the question is not whether it is necessary to raise or lower taxes, but who should pay them. From my political space, Sumar, we believe that this is where the focus should be placed," Díaz insisted. In fact, the Minister of Labour has even criticised the fact that "a tax gift has just been given to rentiers", in reference to the decision of the Ministry of Housing (PSOE) to approve 100% exemptions in personal income tax for owners who lower rents. On the other hand, the Ministry of Finance believes that opening this precedent helps to carry out "fiscal pedagogy". "The important thing is to guarantee that the salary received by workers who receive the minimum wage is around 60% of the average salary and that is currently being fulfilled. What the progressive and left-wing forces cannot do is stigmatise taxes", point out sources from the portfolio led by María Jesús Montero.

However, it remains to be seen how far the conflict will go. Like Sumar, Podemos has presented a bill to revoke the decision of the Treasury, and EH Bildu is also opposed to it, adding PP initiatives along the same lines. A parliamentary majority could overturn Montero's plans and there is a question as to whether the first vice-president could eventually veto this reform so that the SMI is exempt from taxation, arguing that it would lead to a reduction in budgetary revenues.

2.4 million workers benefited

The 50 euro increase approved this Tuesday leaves the SMI at 1,184 euros gross per month in 14 payments, that is, 16,576 euros gross per year. It will benefit some 2.4 million workers, mainly in the hospitality, commerce and agriculture sectors, and will be retroactive: it will take effect from January 1, 2025. With this new increase, the minimum wage in Spain has increased by more than 60% since 2018, when it stood at 735.9 euros gross. Until now, with each increase in the minimum wage, the Treasury had increased the minimum exempt from personal income tax, so that workers who receive it did not have to pay taxes on it. This will not happen in 2025, so the exempt minimum approved in 2024 is maintained: 15,876 euros per year.

It should be noted that the taxation will not affect all beneficiaries of the increase in the SMI, but rather some 500,000 workers – single and without children – according to calculations by the SMI expert committee. "This tax is adapted to the personal circumstances of each taxpayer," recalls José María Durán, professor at the Faculty of Economics and Business at the University of Barcelona. "The bulk of workers who earn the SMI will continue without withholdings for personal income tax," reiterates the Treasury. For example, a taxpayer with a partner and a child under three years of age will not have any withholdings.

Workers who will notice it in their monthly pay will be affected by the lower IRPF brackets, for which the Treasury will withhold a part of their salary – for the 2026 income tax return, the regional part of the IRPF will come into play. The Registry of Economists of Tax Advisors estimated that on average a single worker without children who earns the minimum wage will have a withholding of about 300 euros per year, so the increase in the SMI (700 euros gross per year) would be 400 euros net. However, as can be seen in the graph, the withholdings change slightly depending on the autonomous community, which is responsible for setting a part of the IRPF.

Open debate

Some experts consulted confirm that this debate has been opened due to the increase in the minimum wage in recent years and its approximation to the most common salary. "When a worker pays personal income tax it is because he has greater economic capacity and what he earns is not only destined for subsistence. The key to this tax is that it adapts. You do not pay taxes on the entire salary, but on a part of it," recalls Durán.

"From the aggregate point of view of income [in the public coffers], the impact is small, but it is important in terms of net [income] for those who receive the minimum wage, because it would no longer be 60% of the average salary," says Jorge Uxó, professor of applied economics at the Complutense University of Madrid (UCM). As a result, he suggests that just as the increase in the minimum wage has been progressive over time, the taxation by personal income tax by these recipients could also have been staggered. "Perhaps the debate should not be all or nothing," he points out. According to estimates by the Spanish government, the revenue from not touching the IRPF is around 150 million euros.

For the professor of applied economics at the UB Raúl Ramos, the minimum wage and taxation must be aligned and must be progressively adjusted. In this sense, he considers that "it makes more sense" that the option of the lowest salaries also starting to be taxed by the IRPF has finally been considered. "It should not happen that someone who pays taxes ends up worse than someone who is below the exempt minimum," says the expert. He also insists on the need to update the IRPF brackets to contain the impact of inflation and prevent the lowest incomes from ending up paying more.

Finally, academics such as Uxó remind us that we must also focus on tax pedagogy regarding high incomes. "There are pending reforms such as the taxation of capital income," recalls the economist. A thesis that was also defended by the Ministry of Labour.