Whether someone is self-employed or an employee, a tax payment is part of life. The Intergenerational Equality Mechanism, or MEI, is a new tax introduced in 2023. It targets registered workers, Social Security, and affects salary percentages. This measure touches more than 20 million Spanish citizens and marks a significant shift in how contributions are collected.
What is MEI? New tax coming in 2023
The Intergenerational Equality Mechanism replaces the former Sustainability Factor. It is designed as a contingent and temporary measure aimed at recharging the pension system. In simple terms, MEI seeks to balance the effort required to finance pensions between generations, ensuring long-term sustainability while keeping current benefits intact during its limited operation.
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With aging populations rising rapidly, ongoing unemployment, and the retirement of baby boomers, the pension reserve fund is under strain. The government faces difficult times for retirement funding and looks to MEI among other reforms to address this looming challenge.
Thus, along with other pension reforms, the MEI, published in the official gazette last December, operates on income contributions rather than benefits. Unlike the old Sustainability Factor, which tied pension adjustments to lifespan, MEI activates only when necessary and for a temporary period. MEI affects how much is contributed from salary, not the amount of benefits received in retirement.
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How is the new tax of the Intergenerational Equity Mechanism?
MEI does not reduce pension amounts; pensions remain stable under this scheme, unlike the earlier Sustainability Factor. It is a new contribution that applies to all workers, regardless of income, affecting a fixed percentage of salary. In practice, the share of income used to fund MEI is similar across earnings levels.
What taxes do I currently have to pay in the province of Alicante?
The MEI is introduced as a new contribution concept. Those registered for payroll contributions will see a 0.6% deduction from their wages. The employer covers 0.5% of this amount, while the employee bears the remaining 0.1%. For self-employed professionals, unions estimate the average impact to be around 5 euros per month depending on activity.
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In this framework, the government aims to raise sufficient funds to cover future pension costs. The projection is to accumulate around 22,000 million euros by 2032, at which point the MEI is expected to conclude its initial phase.
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How does the new tax affect you?
To fund MEI, 0.6% is deducted from workers’ wages. Employers contribute 0.5%, and workers cover the remaining 0.1%. For freelancers organized through unions, the typical monthly impact is estimated around 5 euros per month, depending on the specific contractual arrangement.
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For context, consider a worker with a gross salary of 2,000 euros. The MEI deduction would be about 12 euros per month, with roughly 10 euros borne by the employer and about 2 euros by the employee, illustrating the practical impact of the tax on monthly take-home pay.