TWO of Spain's largest high-street banks are reported to be in merger talks, potentially resulting in the joint entity being the second-biggest in the country in terms of share capital.
New Year price changes in Spain: What's gone up and come down?
16/01/2024
EVERY January in Spain sees the start of a new tax year and, with it, changes in prices of utilities, commodities and certain consumer goods, along with amendments to State benefits, the minimum wage, and contributory pensions.
It's not always bad news: Sometimes, prices go down – although pensions and the lowest legal salaries never do; in theory, these should rise in line with inflation, but even larger hikes can be introduced where it is considered socially necessary.
Not everyone is affected by increases in taxes, when these are announced. For January 2024, it is mainly the highest earners who will have to pay slightly more.
So, what's going up and what's coming down as we face the usual post-Christmas efforts to tighten our belts?
Electricity
Energy bills are the first to go up in 2024, due to a review in taxes applied to electricity supply.
Throughout 2023, the government slashed value-added tax (IVA) on mains electricity to 5%, to offset energy price inflation caused by the war in Ukraine, but a gradual return to the usual mid-rate IVA band of 10% is expected over 2024.
Standing charges will rise slightly for electricity use at peak times – between 10.00 and 14.00 and 18.00 and 22.00 on weekdays – but will experience a small decrease for the lowest-priced time brackets, between midnight and 06.00 on weekdays and all day at weekends.
Also last year, the government opted to subsidise Special Tax on Electricity (Impuesto Especial sobre la Electricidad) by 5.11%, leaving it at a total of 0.5%; from the start of 2024, this tax will rise again to 2.5%, and after June this year, will go up again to 3.8%.
For households who use biomass pellets for wood-burning stoves to heat their homes, the reduction in IVA on these to 5% in 2023 will gradually be axed; it has now gone up to 10% and, after June, will return to its previous top-band IVA rate, which is 21%.
So far, the government has not made any amendments to its electricity bill subsidies for low-income households. Last year, 'vulnerable' consumers' discounts went from 25% to up to 65%, and 'extremely vulnerable' consumers' reductions from 40% to up to 85%. This scheme has been renewed again until June – it is reviewed on a six-monthly basis, but as it has been in place for nearly seven years now, is likely to be renewed again mid-year – and is available to individuals and very small businesses who meet the income threshold.
Value-added tax on food
In response to food price inflation, Spain's government opted to cut value-added tax (IVA) on staple goods as a temporary measure, and has announced this will continue until at least June 2024.
When prices soared as a consequence of the invasion of Ukraine, some food items which attract the mid-rate IVA band of 10% had theirs reduced to 5% - namely cooking oil and pasta – whilst those considered 'basics', levied at the bottom rate of 4%, became IVA-free.
Zero IVA on bread, flour, milk, cheese, eggs, fruit, vegetables, beans and pulses, and cereals will remain in place for at least the next six months.
No other items will be IVA-exempt, meaning the 4% bottom-rate figure will still apply to tinned produce, meat, fish, yoghurt, bottled water, sugar, butter and coffee.
Although the majority of Spanish residents would consider bottled water to be even more of a staple product than bread, milk and cheese, this is largely through habit: Almost everywhere in the country, the tap water is drinkable. This said, prices of bottled water in supermarkets are usually in cents rather than euros, making it extremely cheap.
Gas bottles
Mains gas in Spain is not a standard feature and, in many cases, not even present. Households and businesses with a piped gas supply are more likely to be in the north, where central heating with fitted radiators is very common due to the climate, or in big cities, where the investment for gas companies in setting up a network is economically viable. But in the south and on the Mediterranean, especially in smaller towns and villages, mains heating installations are not normally considered to be worth the disruption and cost: A wall-mounted air-conditioning unit which also supplies heat will get more use in summer, and is only likely to be needed for warmth for about a month or two a year.
To this end, most homes in the southern half of the country which use gas will buy butane bottles, and typically only for ovens or old-fashioned stove-type heaters, which are rapidly falling from use. They are also used to fuel gas barbecues – in spring and autumn, since summer is too hot in these areas to use them.
Butane gas prices are set by the State, and apply to the heavier orange bottles when bought off the shelf; the lighter-weight silver bottles are subject to private-sector pricing. Those households with a gas-bottle contract normally pay a little more than the State price for orange butane cannisters, since the cost covers delivery and, if the customer requests it, fitting.
Bottled gas went up 5% in November 2023 – based upon the previous price review in September of that year – to €15.14, but this was still 20% lower than in November 2022.
Although a new price increase has not been announced as yet, the government has set a cap of 5% on any rises until at least June 2024, and a maximum price per 12.5-kilo bottle of €19.55.
Telecommunications
Two of Spain's largest phone and internet companies have announced price rises, one of which is the State-owned Telefónica. The latter's consumer brand Movístar introduced small increases on Monday (January 15) for all its mobile, fibre-optic internet and TV services, ranging from €2 to €4 per month, depending upon the package.
This said, any discounted prices agreed as part of a promotional campaign will remain unchanged as per the contract terms agreed.
Vodafone has also applied tariff increases, since the firm decided in 2022 that its prices would always rise in line with inflation based upon the retail prices index (RPI) up to and including September of the previous year.
As a result, all tariffs have now risen by 4.38%, or roughly 70 cents to €4.30 a month according to contract type.
Public transport
Following the success of the discounted local and regional rail travel scheme in 2022 and 2023, Spain's government intends to continue to slash prices of trains and buses in 2024.
The free regional Cercanías and Rodalies and the medium-distance Media Distancia tickets – where the holder pays €10 and gets a refund after 10 journeys within a set period of weeks – will continue, whilst the Avant trains will attract 50% off or, on the lines linking A Coruña and Ourense (Galicia), Murcia and Alicante, and Madrid and Salamanca, they will be free of charge.
All discounts and free travel schemes in place in 2023 will continue throughout 2024, except the free rail and bus passes for unemployed young adults, which has come to an end.
In addition to State measures, some regional governments intend to continue with existing discount schemes or introduce new ones.
The Basque Country will keep its 20% reduction and Madrid will retain its 30% off.
Barcelona Metropolitan Transport Authority has, however, upped its fares by an average of 6.75% for the coming year.
Motorway tolls
These are far fewer in number nowadays, with several major trunk roads becoming free to use in the past five or six years – most notably the AP-7, or E-15, which runs from the French border to the Costa del Sol along Spain's east coast and became toll-free on New Year's Eve 2019.
For those roads which still do carry toll fees, these will rise by between 5% and 6.65%.
Cap on home rental price rises
The new Residential Property Law (Ley de Vivienda) approved in May 2023 prevented landlords from increasing rent by more than 2% per year, although this cap is now 3% for 2024.
Property owners cannot put rent up by more than 3%, and must give their tenants a minimum of one calendar month's notice before doing so.
Private landlords with fewer than 10 properties on their books are exempt from the 3% cap, but only if the increase is discussed with and agreed with the tenant – unilateral rent hikes of more than 3% are not permitted.
Mortgages
Increases or decreases in mortgages are outside the jurisdiction of the State, although if ever rises were sharp and quick enough to cause widespread social alarm, it is possible the government may take steps to intervene.
Instead, they are governed by interest rates, which are also out of Spain's hands – all countries using the euro as currency have their rates set by the European Central Bank (BCE).
It is no secret that the BCE has dramatically increased the Euribor, or Eurozone interest rate, in a very short time, going from below zero to over 4% in just over a year – the most acute hike ever seen in the history of the common currency.
As mortgages in Spain are reviewed annually, all borrowers have the stability of a one-year fixed rate by default – but it also means they do not feel the benefit of a fall in Euribor rates for up to 11 months.
It also means that any mortgages due for review in the first half of 2024 will see an increase in monthly payments, given that the Euribor has only just fallen below 4% for the first time since May 2023.
Those due for review later in 2024 should start to come down in price.
The BCE has warned that until inflation across the Eurozone comes down to around 2%, interest rates will not reduce – although 2023 saw a dramatic drop in inflation as a result of Euribor rises, following a sudden spike in the former in 2022 as a consequence of the conflict in Ukraine.
Changes in unemployment benefits
Until the financial crisis of 2008 began to bite, jobseekers' allowance was always contributory, and Spain's system was widely admired for its fairness: For every four months of employment, workers would accumulate one month of dole money, up to a maximum of two years' allowance, receiving almost the equivalent of their take-home salary for the first six months they were out of work and about two-thirds thereafter. It meant the immediate urgency to find a comparable job in order to make ends meet was eliminated, but discouraged the newly-redundant from 'living off the State' and avoiding working. The huge stress and blow to self-esteem and stability involved in losing a job means a person of working age is not normally in the right headspace for researching opportunities and giving their best at interviews, so not having to face financial worries on top would give them months to recover and to take their time finding the right employment. But it also gave them a firm deadline – once their jobseekers' allowance was used up, they would have to accumulate it all over again from zero.
But the financial crisis meant two years was often insufficient for finding a job – any job, not merely the right one. As a result, in 2009, the national government introduced non-contributory benefits of €420 a month, a decision it would review every six months and only keep in place where necessary.
This system has now become permanent, but only risen to €480 in the past 14 years.
From June 2024, it will rise to €570 for the first six months of unemployment for those with no dole allowance accumulated or whose contributory entitlement is less; for the next six months, the payment will be €540, and after the first year, will return to the existing €480.
A cap of 30 months – two-and-a-half years - from start to finish applies, although for those who start claiming the non-contributory benefits as a continuation from their contributory allowance, once this expires, the 30 months starts from the moment they begin to claim, not from the moment they became unemployed.
Until now, those whose contributory dole allowance had expired were obliged to wait one month before signing up for non-contributory employment benefit, but the transition can now be carried out immediately.
The non-contributory jobseekers' benefit is compatible with employment taken within the first 180 days, allowing claimants to take on very short-term jobs or those for just a handful of hours a week paying very small amounts.
This now extends to the under-45s with no dependants, having previously been for those aged 45 and above with family or household care duties.
It is also now compatible with ad-hoc and day workers, seasonal agricultural workers – except in Andalucía and Extremadura – and cross-border workers who live in Morocco but travel daily to Spain's city-regions of Ceuta and Melilla for employment.
Overall, the greater flexibility and widening criteria means that around 400,000 people in Spain out of work will benefit, according to the ministry for work.
Taxes
Most tax changes affect companies, and mainly large corporations. For Impuesto sobre Sociedades ('Company Tax', which is payable on profits), limitations have been applied for compensation between firms within the same corporate group, and reduced rates have come into effect for businesses with a turnover of less than €1 million.
For personal income tax, an increase has been levied on individuals for income from capital – one percentage point, to 27%, where this income is less than €200,000, and up to 28% for earnings of €300,000 or more.
Income from capital is defined as returns on investments, such as interest on stocks and shares or funds held on deposit, or earnings from fixed assets, which could be, for example, profit made by letting out one's property once upkeep expenses have been deducted.
Income tax will come down slightly for workers who earn less than a gross €21,000 per annum, and the existing deduction for parents of dependant children will be greater.
Social Security
Known in some countries as National Insurance, Social Security covers State pensions and other benefits such as sickness, maternity or paternity pay, unemployment allowance, and similar contingencies. In Spain, it also part-funds the public health system, and is payable by everyone in work. For employees, Social Security is mainly paid by their company with a small percentage deducted from wages at source, whilst the self-employed have to pay their own monthly quota.
For the latter, this is a fixed fee based upon earning 'bands' rather than being a percentage of their income, with the highest band being for those with a gross monthly pay of €4,000 or more.
Although Social Security goes up almost every year, rises have not been huge of late – it has barely risen by a third in most cases in the past 20 or so years.
Given that, in most developed economies, it is the current generation of working-aged residents who pay State pensions for the previous, the sustainability of retirement income depends upon enough non-retired people being in jobs and earning enough to foot the bill. Larger proportions of retirement-age residents in Spain mean Social Security has now risen – known as the Inter-generational Equity Mechanism (MEI), a 'positive balance' of 0.7% has been recorded for 2023.
The maximum monthly income for which Social Security is paid has now gone up to €4,720 – any salary earned beyond this figure is exempt.
For the self-employed, those whose Social Security payments are in the lower bands will pay approximately €5 to €10 less per month, whilst the higher bands will pay between €10 and €30 more.
Wages
Public sector employees will get a 2% pay rise this year, which may go up by a further 0.5% depending upon consumer price evolution throughout 2024. Although this was agreed between the government and key unions, it is still likely to mean these workers are worse off, given that the Bank of Spain forecasts inflation will rise to 3.3% from its current 3.1% over the next 12 months. Two major national unions – the Labourers' Commissions (CCOO) and the General Workers' Union (UGT) – reached a deal with the government allowing for pay rises of up to 9.5% between 2022 and 2024, although public sector union CSI·F dissented.
Private sector pay is outside the control of the government, but collective bargaining with reviewable industry-wide working conditions agreements is a fundamental feature of the job market in Spain. Unions and company representatives from most employment sectors signed up in May to the fifth edition of the Collective Bargaining and Employment Agreement (AENC), which strongly recommends a minimum pay rise for all workers of 3% in 2024. This comes within the framework of an 'advisory' 10% pay increase over three years – 4% in 2023, and 3% each in 2024 and 2025 – with an additional 1% each year where inflation rates as at December exceed agreed figures.
Another minimum wage increase was due for January 1, but as yet, the various parties have not been able to agree on the amount. The Organisation for Economic Cooperation and Development (OECD), which covers all developed and several emerging nations, called for a 3% rise, whilst the government has proposed 4% and the CCOO is pushing for 5%. The UGT, meanwhile, has given a figure of around 13%, to compensate for rising costs of food and other basics.
State pensions
For residents of State retirement age and above whose pension comes from Spain, their annual pay rise will exceed inflation in 2024 – going up by 3.8%. Those who earn the maximum State pension will see their income rise from €3,059 a month to €3,175 – and, as is always the case with Spanish pensions, recipients get 14 payments, with a double 'salary' in August and at Christmas.
State pensions in Spain are based upon contributions made over up to 37 years of working life, with the final five to 15 years being most crucial for setting the amount received. The average varies from region to region, but is typically fairly generous and allows a retiree to live reasonably comfortably if they do not have a mortgage.
Those who have not worked the minimum of 15 years required to get a contributory State pension usually qualify for a non-contributory pension, which is less, but tends to increase annually by higher percentages; in 2024, it will go up by 6.9%, as will the newly-created ingreso mínimo vital ('minimum living income', or IMV), designed as a top-up for people on very low earnings.
Widows' and widowers' pensions have now risen by 14% for those with family care duties, meaning the average recipient will go from €906 a month to about €1,033.
Related Topics
EVERY January in Spain sees the start of a new tax year and, with it, changes in prices of utilities, commodities and certain consumer goods, along with amendments to State benefits, the minimum wage, and contributory pensions.
It's not always bad news: Sometimes, prices go down – although pensions and the lowest legal salaries never do; in theory, these should rise in line with inflation, but even larger hikes can be introduced where it is considered socially necessary.
Not everyone is affected by increases in taxes, when these are announced. For January 2024, it is mainly the highest earners who will have to pay slightly more.
So, what's going up and what's coming down as we face the usual post-Christmas efforts to tighten our belts?
Electricity
Energy bills are the first to go up in 2024, due to a review in taxes applied to electricity supply.
Throughout 2023, the government slashed value-added tax (IVA) on mains electricity to 5%, to offset energy price inflation caused by the war in Ukraine, but a gradual return to the usual mid-rate IVA band of 10% is expected over 2024.
Standing charges will rise slightly for electricity use at peak times – between 10.00 and 14.00 and 18.00 and 22.00 on weekdays – but will experience a small decrease for the lowest-priced time brackets, between midnight and 06.00 on weekdays and all day at weekends.
Also last year, the government opted to subsidise Special Tax on Electricity (Impuesto Especial sobre la Electricidad) by 5.11%, leaving it at a total of 0.5%; from the start of 2024, this tax will rise again to 2.5%, and after June this year, will go up again to 3.8%.
For households who use biomass pellets for wood-burning stoves to heat their homes, the reduction in IVA on these to 5% in 2023 will gradually be axed; it has now gone up to 10% and, after June, will return to its previous top-band IVA rate, which is 21%.
So far, the government has not made any amendments to its electricity bill subsidies for low-income households. Last year, 'vulnerable' consumers' discounts went from 25% to up to 65%, and 'extremely vulnerable' consumers' reductions from 40% to up to 85%. This scheme has been renewed again until June – it is reviewed on a six-monthly basis, but as it has been in place for nearly seven years now, is likely to be renewed again mid-year – and is available to individuals and very small businesses who meet the income threshold.
Value-added tax on food
In response to food price inflation, Spain's government opted to cut value-added tax (IVA) on staple goods as a temporary measure, and has announced this will continue until at least June 2024.
When prices soared as a consequence of the invasion of Ukraine, some food items which attract the mid-rate IVA band of 10% had theirs reduced to 5% - namely cooking oil and pasta – whilst those considered 'basics', levied at the bottom rate of 4%, became IVA-free.
Zero IVA on bread, flour, milk, cheese, eggs, fruit, vegetables, beans and pulses, and cereals will remain in place for at least the next six months.
No other items will be IVA-exempt, meaning the 4% bottom-rate figure will still apply to tinned produce, meat, fish, yoghurt, bottled water, sugar, butter and coffee.
Although the majority of Spanish residents would consider bottled water to be even more of a staple product than bread, milk and cheese, this is largely through habit: Almost everywhere in the country, the tap water is drinkable. This said, prices of bottled water in supermarkets are usually in cents rather than euros, making it extremely cheap.
Gas bottles
Mains gas in Spain is not a standard feature and, in many cases, not even present. Households and businesses with a piped gas supply are more likely to be in the north, where central heating with fitted radiators is very common due to the climate, or in big cities, where the investment for gas companies in setting up a network is economically viable. But in the south and on the Mediterranean, especially in smaller towns and villages, mains heating installations are not normally considered to be worth the disruption and cost: A wall-mounted air-conditioning unit which also supplies heat will get more use in summer, and is only likely to be needed for warmth for about a month or two a year.
To this end, most homes in the southern half of the country which use gas will buy butane bottles, and typically only for ovens or old-fashioned stove-type heaters, which are rapidly falling from use. They are also used to fuel gas barbecues – in spring and autumn, since summer is too hot in these areas to use them.
Butane gas prices are set by the State, and apply to the heavier orange bottles when bought off the shelf; the lighter-weight silver bottles are subject to private-sector pricing. Those households with a gas-bottle contract normally pay a little more than the State price for orange butane cannisters, since the cost covers delivery and, if the customer requests it, fitting.
Bottled gas went up 5% in November 2023 – based upon the previous price review in September of that year – to €15.14, but this was still 20% lower than in November 2022.
Although a new price increase has not been announced as yet, the government has set a cap of 5% on any rises until at least June 2024, and a maximum price per 12.5-kilo bottle of €19.55.
Telecommunications
Two of Spain's largest phone and internet companies have announced price rises, one of which is the State-owned Telefónica. The latter's consumer brand Movístar introduced small increases on Monday (January 15) for all its mobile, fibre-optic internet and TV services, ranging from €2 to €4 per month, depending upon the package.
This said, any discounted prices agreed as part of a promotional campaign will remain unchanged as per the contract terms agreed.
Vodafone has also applied tariff increases, since the firm decided in 2022 that its prices would always rise in line with inflation based upon the retail prices index (RPI) up to and including September of the previous year.
As a result, all tariffs have now risen by 4.38%, or roughly 70 cents to €4.30 a month according to contract type.
Public transport
Following the success of the discounted local and regional rail travel scheme in 2022 and 2023, Spain's government intends to continue to slash prices of trains and buses in 2024.
The free regional Cercanías and Rodalies and the medium-distance Media Distancia tickets – where the holder pays €10 and gets a refund after 10 journeys within a set period of weeks – will continue, whilst the Avant trains will attract 50% off or, on the lines linking A Coruña and Ourense (Galicia), Murcia and Alicante, and Madrid and Salamanca, they will be free of charge.
All discounts and free travel schemes in place in 2023 will continue throughout 2024, except the free rail and bus passes for unemployed young adults, which has come to an end.
In addition to State measures, some regional governments intend to continue with existing discount schemes or introduce new ones.
The Basque Country will keep its 20% reduction and Madrid will retain its 30% off.
Barcelona Metropolitan Transport Authority has, however, upped its fares by an average of 6.75% for the coming year.
Motorway tolls
These are far fewer in number nowadays, with several major trunk roads becoming free to use in the past five or six years – most notably the AP-7, or E-15, which runs from the French border to the Costa del Sol along Spain's east coast and became toll-free on New Year's Eve 2019.
For those roads which still do carry toll fees, these will rise by between 5% and 6.65%.
Cap on home rental price rises
The new Residential Property Law (Ley de Vivienda) approved in May 2023 prevented landlords from increasing rent by more than 2% per year, although this cap is now 3% for 2024.
Property owners cannot put rent up by more than 3%, and must give their tenants a minimum of one calendar month's notice before doing so.
Private landlords with fewer than 10 properties on their books are exempt from the 3% cap, but only if the increase is discussed with and agreed with the tenant – unilateral rent hikes of more than 3% are not permitted.
Mortgages
Increases or decreases in mortgages are outside the jurisdiction of the State, although if ever rises were sharp and quick enough to cause widespread social alarm, it is possible the government may take steps to intervene.
Instead, they are governed by interest rates, which are also out of Spain's hands – all countries using the euro as currency have their rates set by the European Central Bank (BCE).
It is no secret that the BCE has dramatically increased the Euribor, or Eurozone interest rate, in a very short time, going from below zero to over 4% in just over a year – the most acute hike ever seen in the history of the common currency.
As mortgages in Spain are reviewed annually, all borrowers have the stability of a one-year fixed rate by default – but it also means they do not feel the benefit of a fall in Euribor rates for up to 11 months.
It also means that any mortgages due for review in the first half of 2024 will see an increase in monthly payments, given that the Euribor has only just fallen below 4% for the first time since May 2023.
Those due for review later in 2024 should start to come down in price.
The BCE has warned that until inflation across the Eurozone comes down to around 2%, interest rates will not reduce – although 2023 saw a dramatic drop in inflation as a result of Euribor rises, following a sudden spike in the former in 2022 as a consequence of the conflict in Ukraine.
Changes in unemployment benefits
Until the financial crisis of 2008 began to bite, jobseekers' allowance was always contributory, and Spain's system was widely admired for its fairness: For every four months of employment, workers would accumulate one month of dole money, up to a maximum of two years' allowance, receiving almost the equivalent of their take-home salary for the first six months they were out of work and about two-thirds thereafter. It meant the immediate urgency to find a comparable job in order to make ends meet was eliminated, but discouraged the newly-redundant from 'living off the State' and avoiding working. The huge stress and blow to self-esteem and stability involved in losing a job means a person of working age is not normally in the right headspace for researching opportunities and giving their best at interviews, so not having to face financial worries on top would give them months to recover and to take their time finding the right employment. But it also gave them a firm deadline – once their jobseekers' allowance was used up, they would have to accumulate it all over again from zero.
But the financial crisis meant two years was often insufficient for finding a job – any job, not merely the right one. As a result, in 2009, the national government introduced non-contributory benefits of €420 a month, a decision it would review every six months and only keep in place where necessary.
This system has now become permanent, but only risen to €480 in the past 14 years.
From June 2024, it will rise to €570 for the first six months of unemployment for those with no dole allowance accumulated or whose contributory entitlement is less; for the next six months, the payment will be €540, and after the first year, will return to the existing €480.
A cap of 30 months – two-and-a-half years - from start to finish applies, although for those who start claiming the non-contributory benefits as a continuation from their contributory allowance, once this expires, the 30 months starts from the moment they begin to claim, not from the moment they became unemployed.
Until now, those whose contributory dole allowance had expired were obliged to wait one month before signing up for non-contributory employment benefit, but the transition can now be carried out immediately.
The non-contributory jobseekers' benefit is compatible with employment taken within the first 180 days, allowing claimants to take on very short-term jobs or those for just a handful of hours a week paying very small amounts.
This now extends to the under-45s with no dependants, having previously been for those aged 45 and above with family or household care duties.
It is also now compatible with ad-hoc and day workers, seasonal agricultural workers – except in Andalucía and Extremadura – and cross-border workers who live in Morocco but travel daily to Spain's city-regions of Ceuta and Melilla for employment.
Overall, the greater flexibility and widening criteria means that around 400,000 people in Spain out of work will benefit, according to the ministry for work.
Taxes
Most tax changes affect companies, and mainly large corporations. For Impuesto sobre Sociedades ('Company Tax', which is payable on profits), limitations have been applied for compensation between firms within the same corporate group, and reduced rates have come into effect for businesses with a turnover of less than €1 million.
For personal income tax, an increase has been levied on individuals for income from capital – one percentage point, to 27%, where this income is less than €200,000, and up to 28% for earnings of €300,000 or more.
Income from capital is defined as returns on investments, such as interest on stocks and shares or funds held on deposit, or earnings from fixed assets, which could be, for example, profit made by letting out one's property once upkeep expenses have been deducted.
Income tax will come down slightly for workers who earn less than a gross €21,000 per annum, and the existing deduction for parents of dependant children will be greater.
Social Security
Known in some countries as National Insurance, Social Security covers State pensions and other benefits such as sickness, maternity or paternity pay, unemployment allowance, and similar contingencies. In Spain, it also part-funds the public health system, and is payable by everyone in work. For employees, Social Security is mainly paid by their company with a small percentage deducted from wages at source, whilst the self-employed have to pay their own monthly quota.
For the latter, this is a fixed fee based upon earning 'bands' rather than being a percentage of their income, with the highest band being for those with a gross monthly pay of €4,000 or more.
Although Social Security goes up almost every year, rises have not been huge of late – it has barely risen by a third in most cases in the past 20 or so years.
Given that, in most developed economies, it is the current generation of working-aged residents who pay State pensions for the previous, the sustainability of retirement income depends upon enough non-retired people being in jobs and earning enough to foot the bill. Larger proportions of retirement-age residents in Spain mean Social Security has now risen – known as the Inter-generational Equity Mechanism (MEI), a 'positive balance' of 0.7% has been recorded for 2023.
The maximum monthly income for which Social Security is paid has now gone up to €4,720 – any salary earned beyond this figure is exempt.
For the self-employed, those whose Social Security payments are in the lower bands will pay approximately €5 to €10 less per month, whilst the higher bands will pay between €10 and €30 more.
Wages
Public sector employees will get a 2% pay rise this year, which may go up by a further 0.5% depending upon consumer price evolution throughout 2024. Although this was agreed between the government and key unions, it is still likely to mean these workers are worse off, given that the Bank of Spain forecasts inflation will rise to 3.3% from its current 3.1% over the next 12 months. Two major national unions – the Labourers' Commissions (CCOO) and the General Workers' Union (UGT) – reached a deal with the government allowing for pay rises of up to 9.5% between 2022 and 2024, although public sector union CSI·F dissented.
Private sector pay is outside the control of the government, but collective bargaining with reviewable industry-wide working conditions agreements is a fundamental feature of the job market in Spain. Unions and company representatives from most employment sectors signed up in May to the fifth edition of the Collective Bargaining and Employment Agreement (AENC), which strongly recommends a minimum pay rise for all workers of 3% in 2024. This comes within the framework of an 'advisory' 10% pay increase over three years – 4% in 2023, and 3% each in 2024 and 2025 – with an additional 1% each year where inflation rates as at December exceed agreed figures.
Another minimum wage increase was due for January 1, but as yet, the various parties have not been able to agree on the amount. The Organisation for Economic Cooperation and Development (OECD), which covers all developed and several emerging nations, called for a 3% rise, whilst the government has proposed 4% and the CCOO is pushing for 5%. The UGT, meanwhile, has given a figure of around 13%, to compensate for rising costs of food and other basics.
State pensions
For residents of State retirement age and above whose pension comes from Spain, their annual pay rise will exceed inflation in 2024 – going up by 3.8%. Those who earn the maximum State pension will see their income rise from €3,059 a month to €3,175 – and, as is always the case with Spanish pensions, recipients get 14 payments, with a double 'salary' in August and at Christmas.
State pensions in Spain are based upon contributions made over up to 37 years of working life, with the final five to 15 years being most crucial for setting the amount received. The average varies from region to region, but is typically fairly generous and allows a retiree to live reasonably comfortably if they do not have a mortgage.
Those who have not worked the minimum of 15 years required to get a contributory State pension usually qualify for a non-contributory pension, which is less, but tends to increase annually by higher percentages; in 2024, it will go up by 6.9%, as will the newly-created ingreso mínimo vital ('minimum living income', or IMV), designed as a top-up for people on very low earnings.
Widows' and widowers' pensions have now risen by 14% for those with family care duties, meaning the average recipient will go from €906 a month to about €1,033.
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