Spain Debates 2026 Minimum Wage Hike Amid Tax Exemption Uncertainty

Government Considers Minimum Wage Increase for 2026

The Spanish government is currently engaged in a significant debate concerning the potential increase of the Minimum Interprofessional Wage (SMI) for 2026. Central to these discussions is not only the percentage of the increase but also whether the minimum wage should maintain its current exemption from income tax (IRPF).

A Committee of Experts advising the Ministry of Labour has put forward two primary scenarios for the adjustment. One proposal suggests a 3.1% increase, which would raise the SMI to €1,221 gross per month (paid in 14 installments), provided it remains exempt from income tax. The alternative is a 4.7% increase, bringing the SMI to €1,240 gross per month (in 14 installments), should it become subject to taxation. These figures represent an increase of €37 and €56 respectively, compared to the current €1,184 gross per month (14 installments) set for 2025. Annually, this would place the minimum wage between €17,094 and €17,360 gross.

Stakeholder Positions on the Proposed Hike

The various social partners involved in the negotiations have presented differing proposals:

• Unions (CCOO and UGT): Advocate for a more substantial 7.5% increase, which would elevate the SMI to €1,273 gross per month (14 payments). They argue this increase is necessary even if it means the wage becomes taxable, and also demand legal changes to prevent the increase from being absorbed by other bonuses or supplements.
• Employer Associations (CEOE and Cepyme): Have proposed a more conservative increase of up to 1.5%, which would result in an SMI of €1,202 gross per month (14 installments), and would be subject to taxation. This proposal has been met with criticism from the Ministry of Labour.
• Ministry of Labour (Yolanda Díaz): Has consistently pushed for significant minimum wage increases to align with the European Social Charter's recommendation of reaching 60% of the average net salary.

The Income Tax Exemption Dilemma

A critical point of contention revolves around the income tax (IRPF) exemption. For 2025, the Ministry of Labour and the Ministry of Finance reached an agreement to exempt minimum wage earners from IRPF through a specific deduction. However, the continuation of this exemption for 2026 is a central question. The government is reportedly leaning towards maintaining the tax-exempt status, which would likely lead to the adoption of the lower 3.1% increase proposed by the expert committee. The Ministry of Finance, led by María Jesús Montero, has indicated an openness to updating the existing IRPF deduction to ensure that the net salary of minimum wage recipients genuinely increases.

Timeline and Context

Negotiations are ongoing, with the Ministry of Labour expected to reconvene social partners after the Christmas period. While the new minimum wage will apply retroactively from January 1, 2026, its official approval is anticipated to be delayed until late January or mid-February 2026. The government's objective remains to ensure that the minimum wage does not fall below 60% of the average net salary, a benchmark established by the European Social Charter. There are also considerations for a royal decree that could allow for semi-annual minimum wage adjustments if inflation targets are not met.