article_detail

Just when you thought life couldn’t get any more expensive, a new tax is being introduced in Spain that will affect more than 20 million people.

 

People who are self-employed or working employed on a contract basis for a Spanish company will have to pay the new tax from 2023, known as the Intergenerational Equity Mechanism (‘Mecanismo de Equidad Intergeneracional’ or MEI for short).

 

This new tax will have to be paid from January 1, 2023 by all workers who are registered with the Social Security and which will represent a percentage of their salary.

 

 

The Intergenerational Equity Mechanism replaces the old Sustainability Factor, and is only a contingent and temporary tax, lasting for a period of nine years. This tax aims to refill the depleted pension fund for people reaching retirement age in Spain by means of a balanced distribution of the effort to finance pensions between generations.

 

Spain has decided it is necessary to introduce this new tax due to its ageing population and high levels of unemployment, plus the imminent retirement of the baby boom generation with the pension reserve fund practically empty.

 

 

Among other measures included in the pension reform, the MEI, which was published in the Official State Bulletin last December, was brought forward to January 2023. This mechanism acts on income (contributions) and not on benefits (expenditure) as the repealed Sustainability Factor did. Unlike the Sustainability Factor, which calculated benefits according to the increase in life expectancy, the Intergenerational Equity Mechanism will only be activated if necessary and on a temporary basis.

 

The MEI that will arrive in January 2023 will not affect pensions, so there will be no reduction in the amount received by pensioners, unlike the repealed Sustainability Factor. It is a new tax that will be borne by all workers regardless of their income. In other words, the percentage of salary will be the same for everyone.

 

This new tax will be applied as a new contribution concept, so that people who are registered in the Social Security will see their salaries reduced by 0.6%.

 

In this way the government wants to raise enough money to cover the cost of future pensions. Specifically, the aim is to raise around 22,000 million euros by 2032, when the new tax is scheduled to end.

 

 

To pay this new tax, which will be implemented on 1 January 2023, 0.6% will be deducted from salaried workers’ monthly paychecks. Of this amount, employers will pay 0.5% and workers will pay the remaining 0.1%. In the case of people who are self-employed in Spain, trade unions calculate that the average payment will be around 5 euros per month.

 

In terms of numbers, workers with a gross monthly salary of 2,000 euros, for example, would have to pay an extra 12 euros per month for the new tax, of which 10 euros will be paid by the company and 2 euros by the employee.

 

 

Image: Archive