The average personal income tax rate reaches a record high due to the lack of deflation and improved employment.

Spanish taxpayers are paying the highest average personal income tax rate on record. Or, to put it another way, the percentage of income withheld by the Tax Agency is currently at an all-time high. The Treasury has records on the evolution of personal income tax since 1995. Over the last thirty years, the average tax rate has seen a sawtooth pattern of ups and downs. However, as of 2019, the withholding will increase from 12.7% to 14.4% by the end of 2024. By 2025, the figure could be even higher.

The withholding, however, is not uniform for all taxpayers. The average rate applied to salaries was 17.1% at the end of 2024, while it was 10% for pensions. These are the highest rates since official statistics began. Capital income (personal capital, rent, and capital gains) bore an average rate of 19%.

The Treasury highlights that it approved a 5 billion euro reduction, the largest in history, for low incomes.

The upward trend is essentially due to two factors, according to the tax experts consulted: improved salaries and pensions, along with the lack of deflation of the rate to adjust it to inflation, and an increase in dividends received.

This improvement in gross household income, which reached €901 billion in 2024, means that personal income tax has consolidated its position as the largest tax in terms of revenue for the public coffers. By April 2025, personal income tax has already accounted for 45.8% of tax revenue, exceeding the 43.9% it contributed in all of 2024. This situation also occurs amid an increase in corporate tax revenue, which brought in €39 billion last year.

The gradual progression of personal income tax is one factor that explains this increase in the average personal income tax rate. "We can confirm that the tax has not changed and that the taxable base has increased," says Francisco Serantes, coordinator of the Aedaf group of personal income tax experts.

The Ministry of Finance has refused to adapt the rate to the CPI, and this has increased tax revenue. If the average rate had not increased last year, 13.765 billion less would have been collected, notes Francisco de la Torre, a tax inspector. "In 2025, since there has been no deflation and inflation continues, we will break a record again," adds the tax expert, recalling that Keynes already made it clear that inflation is a tax.

Tax pressure in Spain is 36.5% of GDP, three points below the eurozone average.

The Tax Agency's latest report, for 2022, also shows that the share of the tax on the highest incomes is increasing. In other words, there is a shift in income away from the highest earners, notes José María Mollinedo, general secretary of the Gestha Treasury technicians' union. Thus, in the 2021 fiscal year, the 6.8% of taxpayers with the highest incomes bore 52.7% of the tax. This data implies that a few earn a lot and that the majority of tax returns are concentrated in the lower-middle or lower income brackets.

In principle, this means that more people have higher incomes and wealth, but also that those who already had them accumulate more. Income inequality, therefore, is increasing. "Although incomes are improving at all levels, incomes are increasing more sharply at the top," Mollinedo adds.

Another notable reality in the Personal Income Tax picture is the greater growth in the savings tax base, which increased by 16.7% in 2021 (latest available data), compared to the labor tax base, which improved by 7.3%. Added to this is the fact that 0.6% of taxpayers accumulate almost half, 47.8%, of capital income. There is, therefore, a huge concentration of savings income among taxpayers considered wealthy.

Experts point out that this year, without adjusting the rate, the tax will break records again.

The government emphasizes that in recent years it has managed to approve the largest personal income tax reduction in history for low-income earners, with a total impact on taxpayers of 5 billion euros. It compares this to an "unprecedented" tax increase from 2012 to 2014, amounting to 14.244 billion euros. Regarding the increase in revenue, government sources explain that "if we have record employment, if Spain is one of the fastest-growing economies, it's logical that we will collect more." They emphasize: "The autonomous communities, including those of the People's Party (PP), are also recording record revenues."

This snapshot of personal income tax raises the question of whether it's defensible to call Spain a "tax hell." In the case of personal income tax, based on the EU Directorate-General for Taxation and Customs Union, Spain ranks ninth, 0.4 percentage points of GDP below the average. The overall tax burden stands at 36.5%, three percentage points of GDP lower than the eurozone average. "This justifies the fact that the classification of living in a tax hell is not appropriate," concludes the spokesperson for the Treasury Department.