We collaborated with PIMEC (the Catalan employers’ association for small and medium-sized enterprises) on a report published on 23 July 2026. The report highlights the impact of “fiscal drag” in Spain’s Personal Income Tax (IRPF), caused by tax brackets and tax-free allowances not being adjusted in line with inflation.
Key findings:
- For every additional €100 in labour costs paid by an employer, employees receive only €48 to €56 in net pay. The remainder goes to personal income tax and social security contributions.
- The effective personal income tax rate increased by between 1.3 and 3.2 percentage points for the nine workers analysed (from the hospitality, metalworking and cleaning sectors), despite no changes in their personal circumstances.
- Although gross salaries increased by 22.1%, matching cumulative inflation between 2020 and 2025, workers lost between 2.8% and 4% of their net purchasing power.
- To offset these losses, salaries would need to rise by between 4 and 11 percentage points above inflation. This would increase labour costs by between €1,142 and €3,315 per employee each year, more than €16,000 annually for an SME with 10 employees.
Context: According to the Bank of Spain, 58% of this effect is due to the freezing of tax-free allowances, deductions and tax reliefs, rather than tax brackets alone. The Eurosystem ranks Spain as the second European country that has done the least to offset this phenomenon.
PIMEC’s proposals:
- Introduce a regular and transparent mechanism to review personal income tax parameters, not to reduce taxes, but to prevent “silent” tax increases.
- Prioritise updating personal and family tax-free allowances, together with the tax relief for employment income.
- In Catalonia, move towards a stable review of the regional personal income tax scale, with a focus on low and middle-income taxpayers.