Spain's fiscal drag halves extra salary gains, Pimec report shows

A study by the Catalan SME federation Pimec reveals that unchanged parameters of Spain's personal income tax (IRPF) create a "fiscal drag" that absorbs between 47% and 52% of each additional euro a company spends on raising wages. The effect, called "progresividad en frío," means that when salaries rise to match inflation, tax brackets, minima and deductions that have not been updated since 2015 cause workers to pay proportionally more tax.

Pimec estimates the fiscal drag generated an extra €11 billion in state revenues in 2023 alone, rising to roughly €16.8 billion over 2021‑2024, accounting for about half of the total revenue increase in those years. For employers, the study shows that to deliver a net €100 increase to an employee, a company must spend roughly €180‑€210, with only €44‑€56 reaching the worker after IRPF and social‑security contributions. Despite a 22% rise in gross wages between 2020 and 2025, workers have lost 2.8%‑4% of net purchasing power.

The report attributes 58% of the extra tax burden to frozen personal and family minima, deductions and other fiscal benefits, based on data from the Bank of Spain. Pimec warns that the higher cost of wage increases weakens SME margins and competitiveness.