The Spanish government has modified its position on the taxation of the minimum wage, the Salario Mínimo Interprofesional (SMI), in response to internal coalition dynamics.

This revision, spearheaded by Minister of Finance María Jesús Montero, aims to prevent a complete breakdown in relations with coalition partner Sumar on a sensitive fiscal issue.

Initially, Montero had held firm on ensuring that minimum incomes would be taxed, a stance that contradicted the views of Sumar.

This decision originated in February during a contentious Council of Ministers meeting, where the approval of a recent SMI increase was overshadowed by public disagreements between the PSOE and Sumar.

The escalating conflict threatened to become entrenched, leading to pressure on the government to reassess its approach.

Officials from the Ministry of Finance confirmed ongoing negotiations to find a solution.

This potential agreement would involve reversing the position on taxing the SMI, aligning with Sumar's demands.

Currently, discussions are focused on compensatory measures for approximately 20% of minimum wage earners who receive no tax deductions.

Many of these individuals, predominantly single men, have begun paying taxes on their incomes following recent wage increases.

Under the proposed agreements, the current minimum exempt threshold would not be raised, a factor that would also impact higher income tax brackets.

Sources indicate that should a consensus be reached, Sumar would withdraw its legislative proposal registered in the Congress of Deputies related to this matter and would endorse a 'budgetary veto' that Hacienda intends to promote against this and similar legislative initiatives proposed by both the PP and Podemos to prevent the taxation of the minimum wage.

Key discussions have already taken place between Vice President Yolanda Díaz and Montero, who initiated the negotiations personally and have now tasked their teams with further discussions.

Díaz confirmed in a recent interview that her department has submitted a proposal to mitigate the anticipated internal conflict, particularly ahead of an important vote in the Congressional table on the budgetary veto this coming Friday.

The legislative body must decide whether to lift the budgetary veto, with support from both the PP and Sumar, regarding initiatives aimed at exempting the SMI from taxation.

Government sources have previously indicated that if the Congressional table were to retract the proposed veto in collusion with its partners, the government would seek recourse with the Constitutional Court, escalating the institutional conflict to the judiciary level and highlighting irreconcilable divisions within the coalition.

The government is keen to avoid projecting disunity, especially in a period of vulnerability when it struggles to consolidate majority support for debates on critical expenditures, such as defense spending, or to secure approval for new General State Budgets.

The current route toward an agreement reflects a strategy to protect the coalition's image, despite some socialists re-evaluating their initial commitment to maintaining taxation on the minimum wage, a decision that had been vigorously defended in prior discussions.