Negotiations between Spain's Ministry of Finance and the Ministry of Labour regarding the taxation of the increased minimum wage (SMI) have broken down. Disagreements over the duration of the tax compensation mechanism are dividing the two vice-presidents of the coalition government.
The Ministry of Finance proposes a limited, one-year tax adjustment impacting only 20% of those affected. This contrasts with the Ministry of Labour's push for an automatic adjustment mechanism with every SMI increase, citing a desire to ensure that those earning the minimum wage do not pay income tax (IRPF).
The disagreement has led to a tense situation with differing viewpoints on whether those earning the minimum wage should pay any tax at all. Hacienda believes that, given the SMI's level, taxation is now appropriate, while Trabajo holds the opposing view.
The disagreement risks derailing the government's legislative agenda. The Socialist party has until Friday to veto Sumar's proposal adjusting the SMI tax, potentially leading to a confrontation if a compromise is not reached. Further complicating matters, disagreements over the presentation of the 2025 General State Budget also exist within the coalition.