Net income for the Treasury nears €10.7 billion in the income tax campaign, a new record. Meanwhile, the most common salary barely exceeds €1,500 per month and inflation remains above 3%.
The Tax Agency has closed the 2025 income tax campaign with historic figures. Net income, once refunds are deducted, approaches €10.7 billion, a new high. The record for revenue from the Wealth Tax has also been broken. Additionally, tax revenue accumulated until May is nearing 20% of GDP, another unprecedented figure.
These numbers contrast with the reality of millions of households. The most common salary in Spain barely exceeds €1,500 per month, according to data from the INE. Inflation continues above 3%, eroding families' purchasing power. While the state fills its coffers, citizens feel their money stretches less each month.
The Effect of Inflation on Income Tax
The increase in revenue is largely due to a political decision: not adjusting the income tax brackets for inflation. This inaction causes thousands of taxpayers to pay more taxes without having actually gained more economic capacity. It is a silent tax increase, almost invisible to many citizens, but extraordinarily profitable for the Treasury.
For years, economists and consumer organizations have warned about this phenomenon, known as 'cold progression'. By not updating the brackets, workers who see their nominal salary rise to cover inflation jump to higher brackets and pay more tax, even though their real purchasing power has not improved. The Tax Agency has thus collected billions more without needing to approve an explicit tax increase.
The Government has defended on several occasions that the record revenue allows for the financing of public services and social policies. However, the opposition and some analysts criticize that this is a covert tax increase that punishes middle and low incomes, those who suffer the most from inflation.
Social Contributions Also at Record Highs
Not only direct taxes are setting records. Social contributions are also recording historic revenues, driven by the increase in employment and average salaries. In the first five months of the year, revenue from contributions has grown by 7% year-on-year, according to data from Social Security.
This increase occurs in a context of a robust labour market, with average affiliation nearing 21 million employed. However, the quality of employment remains a concern: temporary work and part-time contracts weigh down the salaries of many workers, who contribute less and, therefore, will have lower pensions in the future.
For readers interested in their personal finances, the key is to review whether the income tax withholdings match their real situation. If income has risen due to inflation but the bracket has not changed, it is possible that the Treasury is withholding too much. It is advisable to simulate the tax return with official tools and, if necessary, request a reduction in withholdings from the employer.
In the coming months, the debate on tax reform will return to the forefront. The Government has announced that it is studying an update of the income tax brackets for 2027, but without a firm commitment. Meanwhile, citizens will continue to pay more for the same effort.
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