Why Sánchez won't adjust Spain's income tax for inflation

Why Sánchez won't adjust Spain's income tax: the taxman wins while households lose

With cumulative inflation in double digits, Pedro Sánchez's government has chosen not to adjust the income tax (IRPF, Spain's personal income tax) brackets and allowances. The decision has a technical name: cold pogre. Wages rise in nominal euros to keep up with the CPI, but as workers jump into higher tax brackets, their tax burden grows faster than their real income. The result is higher revenue without raising rates: a purely automatic effect, with no need to go through Congress.

The mechanics of the 'silent squeeze'

Adjusting the IRPF for inflation means updating the thresholds of each bracket and the personal and family allowances in line with inflation. If this is not done, a worker who earned 30,000 euros in 2021 and receives 33,000 in 2023 just to maintain their purchasing power pays a higher marginal rate even though their real capacity has not changed. The tax agency pockets the difference. Several of Spain's autonomous regions have adjusted their share of the tax; the central government has not.

Three reasons for not doing it

The arguments circulating in economic analysis are varied. The first: revenue needs. With the general budget merely extended, the government manages revenue at its discretion through decrees. The more it collects without raising rates, the less it needs to negotiate. The second: ideology. For some, the IRPF's real pogre is a redistribution tool: failing to adjust for inflation amounts to an implicit tax rise that hits middle and upper incomes hardest. The third, the most cynical: inaction by default. As long as the opposition does not demand it forcefully, the political cost of doing nothing is lower than that of explaining a tax cut to its base.

The irony of 'wealth creation'

Some point out, wryly, that if inflation continues and the IRPF is not adjusted, within a few years all taxpayers will be taxed in the highest brackets and will nominally be 'rich' on paper. A peculiar way of redistributing wealth: impoverish the taxpayer while the tax agency smiles. The debate remains open: the data are stubborn, but political will is measured in the budgets that never arrive.