Whether someone is self-employed or an employee, a payment is required. A new tax for 2023 is being implemented, commonly referred to as the Intergenerational Equality Mechanism (MEI). This is a levy that affects registered workers, Social Security, and ultimately the salary percentage. It represents a measure that will touch more than 20 million Spanish citizens.
What is MEI? New tax coming in 2023
The Intergenerational Equality Mechanism replaces the former Sustainability Factor and is designed as a contingent, temporary measure. Its purpose is to replenish the retirement reserve by distributing the burden of contributions more evenly across generations to finance pensions.
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With aging populations rising, unemployment persisting, Baby Boomers approaching retirement, and a near-empty pension reserve, the Government faces challenging times for retirement financing. As part of broader pension reforms, the MEI was published in the official gazette last December. This mechanism targets income (contributions) rather than benefits (expenses) and differs from the repealed Sustainability Factor, which tied benefits to increased lifespans. The Intergenerational Equality Mechanism activates only when necessary and on a temporary basis.
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How is the new Intergenerational Equality Mechanism tax structured?
MEI does not reduce the amount of pensions, unlike the old Sustainability Factor. It introduces a new tax borne by all workers, irrespective of income, resulting in a uniform percentage deduction from salaries. In practice, the overall payroll percentage remains the same for everyone.
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This new tax is introduced as a distinct contribution concept. Workers registered with social security will see a payroll deduction of 0.6%. This additional contribution will affect both self-employed workers and employees alike, placing pressure on the self-employment quota as well as employee payrolls.
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The government aims to generate sufficient funds to cover future pension costs. Specifically, the goal is to raise around 22 billion euros by 2032, at which point this tax scheme is expected to end.
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How does the new tax affect individuals?
To fund this new levy, 0.6% will be deducted from workers’ wages. Employers contribute 0.5%, and workers bear the remaining 0.1%. In the case of self-employed unions, unions estimate the average monthly impact to be around five euros per member.
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To illustrate the impact, consider a gross salary of 2,000 euros: the MEI would amount to 12 euros per month, with the employer covering 10 euros and the employee responsible for 2 euros.