The ongoing negotiations between Spain's Ministry of Labor and the Ministry of Finance regarding the taxation of the minimum wage (SMI) have taken a dramatic turn. Initially, it seemed that the SMI would be exempt from the Income Tax (IRPF), but a breakdown in discussions has led to uncertainty for many workers.
On March 28, 2025, the second vice president and Minister of Labor, Yolanda Díaz, announced that negotiations had collapsed after María Jesús Montero, the Minister of Finance, allegedly instructed her team to leave the negotiating table. Díaz expressed her frustration, stating, "Montero gave the instruction to get up from the table" during a televised interview on Telecinco.
This situation marks a significant shift in the relationship between the two ministries, as they had been attempting to reach an agreement to prevent the minimum wage earners from having to pay income tax. Díaz claimed that Montero's actions indicated she believed the SMI was already too high.
According to reports, the Ministry of Finance's position was that the SMI should represent 60% of the average salary, a commitment that they believed did not guarantee an exemption from income tax. They argued that no prior agreement had been made to exempt the SMI from taxation indefinitely.
The breakdown in negotiations has also prompted criticism from opposition parties. Cuca Gamarra, a member of the Popular Party (PP), suggested that the government's failure to reach an agreement signifies a lack of governance, stating, "That the government breaks conversations with itself means that there is a lack of governance."
Despite the tension, both ministries had been engaged in discussions since March 24, 2025, to find a solution that would maintain parliamentary unity on this sensitive issue. However, the disagreements became evident as the deadline for registering a budget veto on proposed laws from several parliamentary groups loomed.
These proposed laws aimed to recover the minimum exempt threshold for the SMI, which would allow workers earning the minimum wage, currently set at 16,570 euros gross annually, to avoid paying income tax. The proposed changes would have cost the government between 1,500 and 2,000 million euros, significantly higher than the 200 million euros that the Ministry of Finance estimated would be necessary for a temporary deduction.
Interestingly, the Ministry of Finance's proposal included a specific deduction for SMI recipients, which would allow 80% of them to avoid paying taxes after the increase, while the remaining 20% would only contribute around 20 euros. However, this proposal did not satisfy Díaz, who argued that it contradicted the European Social Charter, which states that the SMI should be at least 60% of the net average salary, free of taxes.
As the negotiations reached a critical point, Díaz revealed that she had sent Montero up to five proposals to find a middle ground, but to no avail. She criticized the Ministry of Finance for not wanting to explicitly separate future SMI increases from the taxation debate.
Just when it seemed the discussions were irreparably broken, a surprising agreement was reached later that day. Sources from both ministries confirmed that a deal had been struck to ensure that SMI earners would not have to pay income tax in 2025. The agreement involved introducing a deduction in the IRPF quota that would exempt SMI earners from taxation.
This agreement, however, is limited to the current year and does not extend indefinitely, which was a point of contention for Díaz. The last-minute resolution came just hours before the deadline for the government to veto Sumar's proposal to exempt the SMI from taxation, prompting Sumar to withdraw its proposal.
In summary, the negotiations surrounding the taxation of the SMI have been fraught with tension and disagreement, reflecting broader issues within the coalition government. The eventual agreement to exempt SMI earners from income tax this year is a relief for many workers, but the underlying conflicts between the Ministry of Labor and the Ministry of Finance remain unresolved.
As this situation continues to unfold, the implications for the future of the minimum wage and its taxation will be closely monitored by both supporters and critics of the current government.
