Thank you, Madam Chair and honourable members. I am very grateful for the opportunity to speak to you today. It's a real privilege to address you. I understand you're considering, as a committee, doing a study on gender budgeting.
I'm going to limit my comments to 10 minutes, as I've been requested to do.
The first point I want to make is that any study of gender budgeting really must look at the tax side of the budget as well as the spending side. Internationally, most gender budget exercises have looked at the spending side mainly. There are a few exceptions, but most are focused on spending, and there are reasons for that.
In Canada, I'd like to make the point that the tax side of the budget is very important, and increasingly important. The reasons for this are that the federal government in Canada has broad and sweeping powers over tax policy, whereas it has much more limited powers, as you know, over spending on programs. So this makes tax an extremely important part of the fiscal picture in Canada.
Secondly, since around 1995 we've had a very noticeable shift, politically, away from a focus on spending towards tax cuts in our fiscal policy. This, again, makes the tax side of the budget so important to look at from the perspective of women.
For both those reasons I've just mentioned, there is an increasing trend to use tax expenditures to address a whole range of social and economic objectives. By tax expenditures, you all know that I mean targeted tax cuts.
Gender-blind tax policy, which is generally what we have--tax policy that's made without explicitly taking gender into account--is simply not good tax policy. It's based on incomplete information. That, I think, is the best reason anyone could give for doing a gender analysis of tax policy. You'll end up with a more effective policy to achieve your stated objectives as well as a more equitable policy.
I'll move on in my written presentation to the principles that really should inform a gender analysis of the tax side of the budget.
There are certain basic principles that one should attend to, regardless of which tax policy we're talking about. I'm going to use the example of income splitting, because I believe you have a brief in front of you as well that I prepared with Nancy Peckford about income splitting. It's a very good example of the problems you get into, the mistakes you make, if you fail to do a careful gender analysis before bringing in a tax change.
The first principle that I would like to see any gender analysis of tax policy consider is the impact on women, both distributively and behaviourally. By distributively, of course, I mean, who is benefiting? Are women getting a fair share of the benefits of the tax change? And behaviourally, how is it impacting their choices? Is it going to impact their choices in a way that's different from the choices that men might make?
These impacts are very likely to differ for women for many tax policy changes because they have less income, on average, than men, because they derive their income from different sources, and because they have much heavier unpaid responsibilities. Those three aspects of their economic profile mean that women will often be impacted differently, be affected differently, by tax policies.
In the case of income splitting, the distributive impact we know is that the pension income splitting rules, for instance, benefit higher incomes much more than lower incomes. In fact, you need to have an income that is at least in the second tax bracket, at least around $38,000, to get any benefit whatsoever from income splitting.
Well, if we consider women's and men's incomes, and we see that women's, on average, are around $26,000, the average woman will get no benefit from that, whereas the average man will have a better chance of benefiting. We also know that as you go up the income scale, those earning over $100,000 will get the vast bulk of the benefits, and that group is comprised of only 23% of women. So there is both a class and a gender bias there.
In terms of behavioural impact of income splitting, there is real concern--Professor Lahey has written about this--about deterring women from entering paid work. Women's labour force behaviour is much more sensitive to changes in tax rates than men's are. Perhaps she will explain more of that. But there is a concern, both distributively and behaviourally, with the income splitting.
A second principle one must always consider I think is the impact on men and women as individuals. In other words, we need to get beyond the household-level analysis, which is the standard analysis that's done by tax policy-makers. There's an assumption that if you deliver a tax cut to a household, all members of the household will benefit equally. I would disagree with that. I think giving a tax cut to the breadwinner does not guarantee that women will get a share of it.
We see that problem arising very starkly with the income splitting case. With the pension income splitting rules, there is a transfer of tax liability to the lower-earning spouse--I'm going to call her the “caregiver”--without any transfer of income required. This is a first in Canada. Always, in the past, any income splitting that is legally allowed requires assets to actually be transferred from the higher-earning spouse to the caregiver. For the first time now, with the pension income splitting rules, we have a rule that says you can put income on the caregiver's tax return without any legal obligation to share the actual income with her. If you look at it, it's really the main breadwinner in the household who's getting the tax cut. The caregiver is getting a new tax liability, without necessarily any addition to the resources under her control.
I think this is what you reveal by going beneath the household level to look at the individuals within the household. If you look only at the household level, this inequality is obscured; it's hidden from view. By getting to the individual level, you reveal it.
A third principle, then, would be that you must consider differences among women, the impact on different groups of women. In my handout to you I've given some examples.
I'll simply highlight the very first one, which is the intersection between gender and poverty. We know that lower-income women are left out of many tax cuts. In 2004, a full 38% of women who filed tax returns had no tax payable. This is because their income was too low to pay income tax, or because they already qualified for other credits that reduced their tax payable to zero. This means that those women cannot benefit from any further income tax cuts. So reducing the lowest rate or providing a new child tax credit, none of that will be delivered to those women.
The only kind of tax cut that can benefit lower-income women is something called a refundable credit, and I would be happy to go into more details about what that is in the question period. One strategy you might want to look at as a pro gender equality tax reform strategy is to convert more of our non-refundable credits into refundable credits, precisely so they can reach those lower-income women.
The final principle, I think, must be central to a gender budget analysis. On the tax side it's to consider the impact on women, both as paid workers and as unpaid caregivers. I would hope that any gender budget analysis would avoid dichotomizing these two. They're very much interlinked as issues for women's equality, and most women struggle to combine these roles in some way over the course of their lives.
Fiscal policies should, I believe, seek to reduce barriers to the labour market. However, they should also support caregivers, and they should do so in a way that delivers support directly to caregivers, not via another person in the household.
Finally, then, to conclude very briefly, what processes could one use to improve the quality and transparency of a gender analysis of our budget? I've pointed out here on the handout that you need both internal and external dimensions to any process. There is some very good international literature that shows that the most effective gender budget processes around the world have included a combination of internal and external elements. Either on their own is less effective.
The last point I'll make, because I'm about to run out of time, is that the Department of Finance must be part of this picture. It is the key agency in making tax policy. It has the expertise about tax policy. It engages in the budget development process in a highly confidential manner, as you know, to the extent that outsiders--in other words, people in other departments or parliamentary committees--are left to do the gender budget analysis, and they will be extremely limited in what they can do because they will only be able to critique what comes out after it comes out. They will not be on the inside of the development process.
Since tax policy is extremely complex and technical, it will be difficult for members of Parliament, for parliamentary committees, for other departments, to catch and understand and to analyze thoroughly what the gender impact is.
We must deploy the expertise of the Department of Finance. If they are not included and invested in a gender budget process, it will have limited effect. I would obviously support whatever any other department or committee can do, but Finance is crucial.
:
Thank you, Madam Chairperson and honourable members.
I'm extremely happy to be here and have the opportunity to give you information that will hopefully assist you in deciding where you want to go with this study.
The first point I would like to make is that discussion of the implementation of gender budgeting in a highly formal and cabinet-based fashion could not be any more urgent in Canada. Since the late 1990s, Canada has lost its renowned spot as number one in both the human development index and the gender development index in the UN human development reports. It has been falling every year since then in its ratings, particularly in relation to women. It has most recently fallen down to number seven in the world from number one in just a few short years.
A new set of indicators that puts more emphasis on the economic functioning of the different indicators ranked Canada, in terms of the gender gap between women and men in 2006, at number 14, and in 2007, at number 18. So things are moving backwards for women in Canada in hard dollars and cents.
It is my own view and the view of quite a few people that a gender budget will enable everyone to look with much more realism at the status of women to date. I have distributed a handout marked annex A, which is a page taken from a report I did for Status of Women Canada on these kinds of issues. It used micro-simulation software to profile the relative income levels of women and men for 2004.
This profile shows that the discrepancy between average male incomes and average female incomes earned, from the time people reached the ages of 16 and 17 to the very end of life in their nineties, is huge and intractable. I've been running this profile for 20 years now, and the figures go up a little bit, but the shape has not changed. The size of the gender gap has changed somewhat, but 20 years ago I projected, based on the rate at which the gap was closing, that it would have closed by 2008. Sitting here in 2007, I now say it's going to revert to pre-1986 levels, probably by 2015. It's that serious.
Professor Philipps is absolutely right when she draws attention to the role of the tax system, which has been notorious as the vehicle for delivering a lot of fiscal outcomes for women that are very hard to see, hard to identify, hard to measure, and hard to track.
A gender budget could be put into place, preferably built on the existing and nearly 20-year-old tax expenditure budget published every year by the Department of Finance that accounts for hundreds if not thousands of specific line items in the various taxes that are imposed by the federal government. Then it would be possible to bring the various tax factors that are driving women's and men's average incomes apart from each other and pinpoint precisely which specific tax measures and spending measures are most responsible for the growing disparity in the male and female incomes. Further than that, it would be possible to devise with a great deal of accuracy exactly what kinds of tax and spending measures with the least cost would be most effective in beginning to reverse the ever-widening gap between male and female incomes.
To give you a bottom line, the most recent UN report on total incomes for men and women in Canada says that women's incomes are still only 64% on a global basis of the total of men's incomes. So you may hear that the wage gap is small and shrinking and so on, but when you look at the total amount of money that comes into the hands of women, they have yet to receive even two-thirds as much as men receive every year.
As Professor Philipps said, out of that reduced income, women not only have heavier responsibilities--something like 81% of all single parents are women, and you don't get to be a single parent unless you have at least one child in the house--but women are also responsible for much heavier shares of unpaid work that has to be done.
A 2004 survey by the Law Society of Upper Canada on the unpaid work of women lawyers, who worked the same work weeks as men, showed the average man did 13 hours of unpaid work per week and the average female lawyer did 35 hours of unpaid work on top of having to bill at a level that keeps them viable as practising lawyers. So the bottom line is that women in Canada are extremely heavily burdened by low incomes, heavy workloads, and heavier responsibility for children, and at the same time, the tax system has been pushing them further down.
Next I would like to address what I think are the specific causes in the overall tax system that are most responsible for maintaining the status quo. The first point I would like to address is the combined effect of consumption and commodity taxes combined with the existing rate structure under the Income Tax Act.
If you think in terms of how income at the lowest income levels is allocated, and if you look at annex A, you will see that women's average incomes never get much better than about $30,000 a year, which is not a lot to start with. At the present time, out of that comes 7% for provincial sales tax in Ontario, plus the GST portion, which, if I'm keeping track of things correctly, is somewhere around 6%, maybe going down to 5%. Who knows? Together, that comes to about 13% right there out of every dollar a woman spends, because any consumption items will be potentially taxed at that rate.
If you look at income tax, you see changes were introduced in 1987; that's 20 years ago. The lowest rate of income tax federally used to be 6%--I don't know if anybody here remembers that--which was 9% when the provincial layer of tax was added. When that tax was raised to 17% from 6% as a result of the 1987 changes to the Income Tax Act, that really escalated the amount of tax payable by the very poorest people in Canada. The exemption right now under the Income Tax Act is only around $9,000.
So the bottom line on that point is that a heavy and crushing burden looks gender neutral but impacts women disparately by virtue of the cumulative effect of the GST, PST, federal income tax, plus provincial income tax, and that is something women cannot avoid because most of their income is earned in the form of employment income from which few deductions are available.
Added to that are the growing number of joint tax provisions, which I have discussed in detail in the Status of Women study that you have excerpts from. I would like to reinforce the points that Professor Philipps has made in relation to income splitting specifically. If you take a look at the distribution of this tax benefit, the median retirement age income for couples is around $40,000 right now, $42,000. It is absolutely true that people who have $40,000 worth of income or less will get no benefit from income splitting. The higher the income goes, the larger the benefit, up to as much as $11,000 per couple. Seventy-seven percent of Canadians think that income splitting is good for people, but it's not good for even half of all Canadians. We need more light shed on taxation.
:
Thank you, Madam Chair.
In a document from you, Professor Lahey, which I read, you stated—and of course, I think Professor Philipps mentioned the same thing—that women essentially occupy an economic sphere separate from that of men in our society. I quite understand your description of why that would be. Professor Lahey--or maybe both of you--could you expand for us a little bit, just so we understand the underpinnings of all this and how we have to, in my view, deconstruct not only how taxation is structured and imposed, but also how we will have a field battle in dealing with some very inherently ingrained attitudes and behaviours that I think our society was structured on? I think it's going to be a difficult thing to do, but it should not be something that we don't do, obviously.
Professor Lahey--or probably both of you--could you just expand a little bit for us, because this is very important, the kind of work we're going to have to do? Regarding the culture you're talking about, Professor Lahey--the tax system having been structured along the lines of the nuclear family, with certain assumptions built in, the role a female would play, and the stereotypes that are deeply ingrained in that structure--could you, or both of you, expand on that and maybe give us some suggestions as to how we might begin to deconstruct that--because it's a major job--and where we might start with chunks of it?
I'll close by saying that you may want to comment on this final piece, which is on the taxation reversal that happened in 1987 when Mulroney was in power. It went from 6% to 17%, and that 17% was then on the lowest-income earners, most of whom were women. So we actually put the tax burden on the backs of most of the lowest-income Canadians. That might well have.... I'll just leave that to you. It's a bit of a mouthful, I know.
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I have not seen a meta-study that correlates budgetary responses with movement in the global indicators like the human development index, the gender development index, or anything, but it's very clear just from looking at the correlations that such a study would produce the evidence you are looking for. I have no doubt about that.
The other aspect of that, of course, is that if I can sit down with the limited micro-simulation software that Statistics Canada is willing to let the public have access to and pinpoint exactly which groups, at what ages, at what income levels, gain or lose if we change a particular provision--a spending provision or a tax provision--by a few dollars, a few hundred dollars, or whatever, and look at where they fall and who the winners and losers are, then you know the Department of Finance can do that, probably even on a bad day. So the information is there. Canada has the expertise. Statistics Canada and the Department of Finance together have the technical capability to do that.
Being able to continue is very much a function of political will, and I believe that is what happened in Australia and why its gender budgeting has become more of a symbolic gesture, as compared with some of the Nordic countries.
The real question is how to do this. Let me just go back to talk about the tax expenditure budget, which is a huge undertaking that was mounted by the Department of Finance in a very short period of time in the late 1970s, when it was realized that a lot of spending measures were disguised as tax measures and were escaping the rigours of the budgetary process. A team was struck within the Department of Finance and it was charged to develop a tax expenditure budget and come up with a justification for why it identified these items. It was done in a very short period of time, and it has continued ever since then.
So the ability is there. It seems like a huge undertaking, but that's partly because it's a huge undertaking to even make it okay in the budgetary process to talk about gender issues. There's almost more of a social obstacle to overcome rather than a technical obstacle.
When it comes to implementing gender budgeting, however, I would say that it should be a joint effort of Status of Women Canada, the Department of Finance, and an outside advisory group of experts, an all-party panel, that can bring perhaps through changes in government some moderating effect that could be described as academic objectivity, although we all understand that not everyone is going to agree as to who's really objective. I think some structure like that would get it going.
If this committee felt it was too hard to take on the whole thing at once, I would say do an in-depth study of income splitting of retirement income. I have micro-simulated what would happen if income splitting were carried out for all incomes for all taxpayers in Canada, and the effects would be absolutely devastating--annex A, the curve, would become much more dramatic in a year.
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As to the first question, how many people would have to be hired and how much would it cost, I really don't know the answer, but it is not surprising that there is a tremendous amount of research already in existence in Canada on a whole range of issues.
Take, for example, defence spending. Some people would say women account for 51% of the population, so they get 51% of the benefit of defence spending. That is one way of looking at it. Another way to look at it is to start examining how many women receive salaries, employment benefits, specific training opportunities, and so on, as the result of military spending, how many women receive after-service care that is available to military, and how is public and social support distributed through various organizations on bases distributed between women and men. Those are the kinds of questions that would start breaking down how the spending side affects people by gender. It will cost some money to do it; however, if the UN, the IMF, and the World Bank are correct in saying that the GDP will grow faster when both women and men are working in their most economically productive fashion, then I think the long-term economic gains would outweigh the costs.
I agree with you completely on the diversity aspect of your question, but what has been shown is that until gender analysis is in place, it's very difficult to begin making sense of other diversity characteristics as well, because whether you do an analysis of impact by race, by disability, by sexual orientation, by age—pick any demographic characteristic you want—women are always in second place. So you need a gender analysis. You can either do a global gender analysis to get started and then start looking at additional characteristics, which will always enrich your analysis and help further target effective government policy, or you can do the breakdown by other characteristics and then gather all the gender data together at the end.
I think going after gender first, because it's one of the most fundamental human divisions, male and female—perhaps far too important—is the place to start. Who determines what is a benefit and what is a detriment? I think we need to listen to people talk about that.