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Spain is about to raise the minimum wage by a whopping 22 percent

Spanish Prime Minister Pedro Sanchez said Wednesday his cabinet would approve next week a 22 percent increase in the monthly minimum wage to €1,050 ($1,192) in 2019.

Spain is about to raise the minimum wage by a whopping 22 percent
Photo: AFP

The increase, “the biggest since 1977”, will be approved at a cabinet meeting to be held in Barcelona on December 21st, he told parliament.

 “A rich country can't have poor workers,” said Sanchez, who is widely expected to call an early general election next year.

The measure was part of his minority Socialist government's draft 2019 budget which he is struggling to pass in parliament so it will now be approved by decree.

The announcement comes after French President Emmanuel Macron unveiled Monday a 100-euro ($113) per month increase in the minimum wage from next year in a major concession to “yellow vest” protests which have roiled the country.   

After years of austerity policies imposed to cope with the fallout from the 2008 financial crisis, governments are under increasing pressure to ease the purse strings, especially for the lower paid.

Sanchez's Socialists control just 84 seats in the 350-seat parliament, the smallest number for a government since the country returned to democracy following dictator Francisco Franco's death in 1975.   

He negotiated the draft 2019 budget with far-left party Podemos, which controls 67 seats, but would still need the support of Catalan separatist parties to pass the spending plan and they have steadfastly refused.   

The government estimated the minimum wage hike will cost the state €340 million per year.

Employers groups and the conservative opposition parties, the Popular Party (PP) and Ciudadanos, oppose the wage hike, saying it will hurt job creation.   

PP leader Pablo Casado has said the 2019 budget, which also includes tax  hikes, is “economically suicidal”.

The decision to raise the minimum wage by such an amount has been slammed by the chairman of Banco España who claims it will cause thousands of young people to lose their jobs. 

Pablo Hernandez de Cos told journalists last month that the salary rise would slash 0.8 percent of jobs in Spain and “have the opposite effect to that intended of hindering those we want to help most, young people.”

READ MORE: Minimum wage rise will cost 150,000 jobs: Bank of Spain

Of the 19.5 million people registered as employed in Spain, that percentage amounts to 150,000 jobs.

“A small minimum wage increase has little effect, but we haven't had to deal with such big wage rises before, let alone 22.3 percent,” Hernandez de Cos explained in his first parliamentary press conference since being appointed head of Spain's Central Bank last summer.

Previous minimum wage increases in Spain were of 8 percent in 2017 and 4 percent in 2018, but Hernandez de Cos claims that employer's obligation to pay considerably more will make them fire their least productive workers.

“Empirical evidence on the consequences of SMI (salario mínimo interprofesional) rises are varied, but it is usually regarded as having a negative effect on peripheral jobs” and has “the most significant impact on young people and older unskilled workers”, he added.

Unemployment fell below 15 percent for the first time in 10 years during the 2018 summer period, Spain's public data institute INE reported in late October (six months earlier than Spanish megabank BBVA predicted).

Youth unemployment remains high, 28 percent, but is still far less alarming that during the height of the financial crisis, when it surpassed 55 percent in 2013 (average joblessness in Spain came close to 27 percent that year).

For members

WORKING IN SPAIN

Why does my salary vary between months in Spain if I’m a contract employee?

If you’re employed by a company in Spain, you may have noticed that what you get paid each month is sometimes higher and other times lower. Here's why this happens and how you can understand it better.

Why does my salary vary between months in Spain if I'm a contract employee?

Many asalariados (salaried employees) across Spain will have noticed that their wages at the beginning of 2022 may have been lower than that net salary they received at the end of 2021.

This is in fact usually not down to error, but comes as a result of your company withholding a higher amount of personal income tax (IRPF) at the start of the year, resulting in you getting paid less.

Companies in Spain are obliged to withhold a certain percentage of your salary called IRPF (Impuesto sobre la Renta de las Personas Físicas).

This, in turn, gets passed on to Spain’s Hacienda tax agency. Your gross salary and personal circumstances mean that the income tax withheld will vary.

Your employer will calculate the amount of your gross salary you must pay to the Treasury as personal income tax and will deduct it from your payroll month by month. This can be done between the 12 or 14 salary payments per year.

Alternatively, a lower percentage of tax may be applied in the first months of the year, which is then adjusted by raising it in the final few months of the year, or vice versa, which is why fluctuations can occur.

You should keep in mind that if at the beginning of the year you received a raise, had a baby or opened a pension plan, it may mean that the tax withheld from your company will go up or down. Having a new baby for example gives you a reduction.  

What if I believe there is an error in my IRPF calculations?

If you still believe there is an error, this can be rectified whilst filing your annual income tax return – la declaración de la renta – which you should each year between April and June.

READ ALSO – La Renta: The important income tax deadlines in Spain in 2022

If you receive an annual gross salary of less than €22,000, you are not required to fill out an annual tax declaration, but may want to do so if you believe that your employer has been deducting too much tax. If the error is found in your favour, Spain’s tax agency will return your overpaid tax.

How can I find out how much tax will be deducted in advance?

If you want to be prepared and find out exactly how much tax your company will deduct from your salary each month, you can fill out this tax calculator for 2022 found on the Hacienda website. This will let you know exactly how much IRPF should be deducted from your wage, depending on your personal circumstances. 

Your employer may also ask you to fill out the form Modelo 145 to help them work out how much tax you should pay.

The form will ask you for your current personal situation such as marital status, if you have children or other dependents. Depending on the outcome of this, you may get further discounts on the amount of tax that is withheld.

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