The effective taxation on wages and pensions, which in plain language is the percentage of these incomes that taxpayers pay in taxes, has reached unprecedented levels in Spain. The average rate borne by these incomes has soared compared to the period before the pandemic and is at historic highs. In the case of salaries, it has gone from 15.5% recorded in 2019 to 17.5% forecast for 2025, according to provisional data recently published by the Tax Agency. The increase is even greater in the case of pensions, with a rise in the same period exceeding two percentage points, placing the average tax on benefits at 10.4%.
Overall, the average income tax burden (IRPF), which is complemented by the effective rates that tax capital income and other earnings, already reaches 15.1%, almost two and a half points above the level before the health crisis and also a historic maximum. Thus, for every euro earned from working, receiving a pension, or capital gains, more is paid to the Treasury than a few years ago.
It is a notable increase, occurring over a relatively short period and resulting from a combination of macroeconomic and fiscal factors. Jorge Onrubia, associate professor of Public Finance at the Complutense University of Madrid and associate researcher at Fedea, points first to what is known as cold progressivity, a phenomenon that emerges when inflation soars and the structure of the IRPF remains unchanged. This fits with what happened in Spain between 2020 and 2025, a period in which the consumer price index accumulated a 23.5% increase, while the Ministry of Finance chose not to update the tax.
When the increase in nominal wages — driven to ease workers’ pockets amid rising inflation — is not accompanied by an update of the tax brackets, minimums, and deductions, the effective rate paid by taxpayers grows inevitably without necessarily improving their real purchasing power. That is why, María Cadaval, professor of Applied Economics at the University of Santiago de Compostela, refers to it as the “inflation tax.” “The lack of updating the main elements leads the tax to treat nominal income increases as real increases,” she adds. Violeta Ruiz Almendral, professor of Financial and Tax Law at Carlos III University of Madrid, also criticizes this lack of updates: “The failure to update amounts and the absence of any mechanism to address them periodically across the tax system produces harmful effects.”
The lack of deflation of the IRPF is compounded by the good performance of the labor market in recent years. More people are working and, in general, wages are higher in nominal terms than before, something to which the drag effect of the increase in the minimum interprofessional wage has also contributed, as Almendral recalls.
Furthermore, labor income — wages — has an increasing weight within the total declared income and, unlike other incomes such as investments or capital gains, is taxed at higher rates. All this, Onrubia acknowledges, inevitably pushes the overall average tax rate upwards.
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The equation is completed with pensions, which follow a similar dynamic. As Cadaval recalls, the revaluation of public benefits to counteract the ravages of the inflation crisis caused many pensioners who previously were not required to pay IRPF to now exceed the legal limit and be obliged to pay taxes. At the same time, like salaried workers, they may have moved to higher brackets without experiencing a real improvement in their purchasing power.
The numbers collected by the Tax Agency in its statistics are still provisional but reflect the growth rate of all these incomes. In 2025, the gross wage income of Spanish households exceeded 540 billion euros, 6% more than the previous year and 40% above the figure for 2019. Pensions have moved within the same parameters, totaling nearly 205 billion euros in the past year.
For all these reasons, Onrubia insists, “cold progressivity is key, but it would be simplistic to say it explains everything.” Thus, the increase in the average effective IRPF rate in these last two years rather reflects a “passive increase” of the IRPF in all its concepts, due to inflation and structure, although there has been no explicit increase in marginal rates of the tariffs nor reductions in exemptions, reductions, or deductions of the quota. These are diagnoses that have been put on the table by bodies such as the Independent Authority for Fiscal Responsibility (Airef) or the Bank of Spain, among others.
Cold progressivity, along with the pull of the labor market and the overall economy, has allowed the Treasury to raise public revenue through the IRPF above 325 billion euros in 2025, a record in the historical series. In these years, the ministry has refused to deflate the tax, explaining that it would disproportionately benefit higher incomes, which are in the upper tax brackets and would take advantage of reductions in the lower steps. For this reason, the government has so far defended other formulas focused on low incomes, such as expanding the reduction for work income or tax deductions designed for minimum wage earners.
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