FEWO Committee Report

The Committee recognizes that there are key differences between traditional (or gender blind and gender unaware) approaches to the budget and a gender responsive approach. The chapter begins with a discussion on macroeconomic policy, since the Committee heard conflicting testimony as to whether this policy area can be analyzed from a gender lens. The chapter then contrasts the government’s traditional approach to the budget to that of a gender responsive approach by examining the expenditure side and the tax side of the budget.[153] The chapter makes recommendations to ensure that government spending and taxation policies are gender responsive. In the next chapter, the report will address the way forward towards implementing a gender responsive budget.

A. Macroeconomic Policy and Gender Responsive Budgets

In his testimony, the Deputy Minister of Finance underlined Finance Canada’s commitment to the “overall economic health of the country.”[154] He informed the Committee that the Department’s “overall approach” is concerned with the “well-being of all Canadians—but women within it.”[155] Committee members heard that Finance Canada is committed to ensuring “the overall economy is dynamic enough to create growth, to help all Canadians, and to protect the most vulnerable in a period of economic uncertainty.”[156]

In terms of gender-based analysis, Finance Canada distinguishes between “structural” policies and “macroeconomic” policies.[157] As explained by Ms. Levonian, GBA Champion at Finance Canada:

Macro-economic policies deal with aggregate economic variables such as fiscal surpluses and fiscal deficit targets and the level of public debt. These policies provide the economic and fiscal framework within which structural policies are developed. Since macro-economic policies are by definition not targeted to any sector or any group of individuals in particular, gender-based analysis is not applicable.

Structural policies, on the other hand, can impact specific sectors and segments of the population. Since these policies could potentially have different measurable impacts on women and men, it is on those policies that gender-based analysis is carried out. Examples of structural policy for which the Department of Finance is responsible include tax, tariff policy, managing federal borrowing, administering transfers to the provinces, and developing an effective system of regulation for the financial sector. [158]

In contrast to the distinction made by Finance Canada, Professor Rhonda Sharp, a gender budget expert from the University of South Australia, explained to the Committee that the macroeconomic strategy is fundamental to the government’s commitment to gender equality and intrinsic to the gender responsive budget exercise:

[T]he wider economic and political context in particular, the macro-economic strategy that's in place, and the discourses about the role of government do play a fundamental role in shaping what can be achieved I think in relation to gender equality, but just as importantly, they're going to shape the design of any gender-responsive budgeting exercise that you may wish to implement.[159]

A gender responsive budget considers macroeconomic policy key to “shaping women’s living standards and their prospects for economic empowerment.”[160] It thus incorporates human development objectives which lead to greater economic growth. As Ms. Yalnizyan explained:

Human development is about public and private investments. It is not specific to women, but when you invest in the things that help women, you automatically see this huge multiplier effect in communities, which then, curiously, leads to greater economic growth. It is a virtuous circle that we have lost track of in the last ten years.[161]

In a traditional budget approach, aggregate economic variables are thought of as eventually “trickling down” and benefiting the whole population. As an expert in the field of gender responsive budgets noted:

[T]here is a growing recognition that ‘trickle down’ is not automatic; rather, concerns of poverty and inequality, including gender inequality, need to be brought directly into the framework of macroeconomic policy.[162]

Witnesses explicitly pointed out that a gender responsive budget must include both macroeconomic and structural policies of the budget. Ms. Peckford recommended that Finance Canada consider the differential effects of macroeconomic policies have on women particularly since there is a growing body of literature in this area:

I would invite this committee to think about whether or not that's the best choice it can make and whether or not it's possible to do GBA on macroeconomic as well as structural policies. There's an emerging expertise out there that's trying to grasp the larger macroeconomic picture in terms of what it means for women, and I think the finance department could avail itself of that.[163]

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As further noted by Ms. Yalnizyan, since a significant proportion of women occupy the bottom income brackets, macroeconomic policy affects their daily lives. A gender-based analysis helps to “illuminate” what these effects are on women’s incomes:

You've mentioned world economic pressures. You alluded to the decline in manufacturing. And there's the credit crunch that we're all dealing with too. These are large-scale hydraulics that will affect the macroeconomy. In every instance, the role of women is at the bottom of the income spectrum. In every instance, a good GBA analysis will illuminate our understanding of how the distribution of incomes is changing and how government policy impacts that distribution.[164]

The Committee agrees that, in order to move forward with a gender responsive budget that truly reflects the reality of women’s lives, it is essential that Finance Canada consider the impact of both macroeconomic policies and structural policies. Therefore:

RECOMMENDATION 12

The Committee recommends that Finance Canada undertake on a regular basis a gender-based analysis of government macroeconomic policy; that it seek the expertise of researchers and academics who have analyzed how macroeconomic policy has alleviated or exacerbated gender inequality; that it consider in its analysis how such government macroeconomic policy increases, reduces or leaves unchanged the losses to society from gender inequality; and that these analyses be applied to subsequent federal budgets.

B. The Expenditure Side

Witnesses repeatedly stated that in order to address women’s equality, public investments in key areas must be made. These include affordable housing, child care, and access to post-secondary education.

But we know what the simple things are that can advance women's equality, and these things have been repeated over 20 or 30 years. They include anything to do with affordable housing, child care, access to post-secondary education. These are not gender-specific things, but we know they improve the position of women. So there is a short list of things that open up opportunity for women and reduce barriers. But are any of those things in the budget? And to what extent is the budget focused on advancing women's equality?[165]

Even though the federal government has allocated spending in these areas, the Committee heard that these resources do not adequately address women’s needs. For example, one of the witnesses described the impact that new post-secondary education spending had on women. Her analysis showed that new federal funding did not sufficiently address the needs of 1.3 million students. Women comprise a higher proportion of post-secondary students and, consequently, the impact of higher tuition rates is greater on women than on men.[166] During their testimony, Finance Canada officials cited government spending on housing as an example of the government’s progress on affordable housing.[167] However, other witnesses pointed out that an analysis of the incidence of benefits would need to be made to assess the impact of these spending measures:

For example, on affordable housing, you heard about three or four programs, which were marshalled in front of you. Who benefited? Where did they benefit? Are people actually more housed today than they were 10 years ago? These are important, substantive questions. The evidence is there or it's not there, and if the evidence is not there, then you can't say you've made progress.[168]

Witnesses informed the Committee that a gender responsive budget exercise is concerned with analyzing spending cuts as well as new spending based on government surpluses. Ms. Yalnizyan cited as an example the drastic federal cuts made during the deficit-cutting years in the early 1990s and their negative impact on women. She noted that these investments were never restored when the government experienced budget surpluses:

During the surplus years, those moneys were never restored. So what we were left with was a situation in which women weren't able to reliably count on programs and services that were very, very important for the stability of themselves and their families.[169]

Witnesses pointed out that governments should consider analyzing the way in which surpluses are allocated. As Professor Sharp stated:

But it is interesting, if you have large budget surpluses, to be able to focus on where the surplus money is going. I think that's politically crucial, because it at least looks as though—it's not true—you're not taking it away from anybody else but are distributing the benefits.[170]

More specifically, Ms. Yalnizyan noted that governments need to reinvest in their communities during times of economic growth.

We have had a strange last ten years, however. Even with a strong and growing economic environment and with public coffers growing, we have failed to reinvest this and reap the rewards, whether you're talking about making sure that there are community centres where kids can play, or that women are getting assistance in child care, or that there's enough health care out there so women are not taking care of the elderly or the disabled or the ill at home. There are so many things we could be investing in that actually are win-win for everybody. But the current environment is that investments are best left to the private sector and that the public shouldn't be investing; it should be getting out of the way of the market.[171]

As will be discussed in the next section, there has been a tendency in the federal government to rely on tax expenditures as a funding source for social programs. The Committee heard that direct spending should also be considered as another option for funding social programs. Witnesses recommended that Finance Canada should determine the best funding mechanism for a particular social program in consultation with line departments and by enlarging the consultative process.

Again, it is enlarging the consultative process and enabling a focus on gender to take place at an earlier stage, which is key to it all. And not to keep knocking Finance, but really, when you’re talking about sophisticated and important social programs, you need as much input from those with knowledge about those issues as you do from the financial experts.[172]

The Committee believes that, in the preparation of a gender responsive budget, Finance Canada should not restrict its gender-based analysis to tax policy initiatives, but must also undertake a gender-based analysis of current and new spending initiatives. Therefore:

RECOMMENDATION 13

The Committee recommends that Finance Canada undertake an analysis of the distribution of benefits of current and new government spending initiatives; that Finance Canada examine the impact this funding has on women and men, on groups of women and men and by income class, and where applicable, breakdowns by age, relationship status and dependents; that these analyses be periodically reviewed by the advisory panel of experts of Status of Women Canada; and, that these analyses be applied to subsequent federal budgets.

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C. The Tax Side

1. The Tax System

The principal function of the tax system is to raise the revenues necessary to fund government expenditures that reflect society’s priorities. The tax system can also be used directly to achieve public policy objectives through the application of special tax rates, exemptions, deductions, rebates, deferrals and credits that affect the level and distribution of tax.[173]

A large portion of government revenues are collected through the tax system in the form of personal and corporate income taxes. The Committee heard that the tax system is not gender neutral, but that it does have a differential impact on women and men. Witnesses explained to the Committee that not all government objectives can be addressed through the tax system or though tax reductions. As Professor Philipps noted:

I think it's true that many problems of equality require direct spending by government to address; not everything can be done through the tax system to address women's inequality or the problems of low-income people.

This is one of the reasons we need to examine the budget from a gender lens, because there has been such a heavy shift towards tax cuts as the instrument for addressing problems, and we need to scrutinize those to see if they're working equally well for men and women, for low-income and higher-income people.[174]

More generally, Ms. Yalnizyan noted that “tax policies and spending policies have reinforced this divide in society between rich and poor.”[175] She referred to a recent report by the Organisation for Economic Cooperation and Development that showed tax policies pursued by Canada and other countries have had “a more favourable impact on higher income groups.”[176]

Professor Young and Professor Good both stated that new tax measures encompass a small proportion of the budget. It was recommended that instead of Finance Canada focusing only on new tax measures as part of its gender-based analysis, its analysis should be extended and applied to current tax rules.[177] Witnesses also criticized Finance Canada’s gender-based analysis as insufficient in terms of “what it’s identifying as useful to women.”[178]

Professor Philipps explained to the Committee that the government currently has in place a gender blind policy which is a tax policy “that’s made without explicitly taking gender into account.”[179] She recommended four considerations to be applied in a gender analysis of tax policy:

1. The impact the tax policy has on women both distributively and behaviourally;[180]

2. The impact the tax policy has on women and men as individuals within the household;

3. The impact the tax policy has on different groups of women; and,

4. The impact the tax policy has on women paid workers and as unpaid caregivers.

(a) Personal Income Taxes

The Committee heard that in 2007, 38% of women and 24% of men did not file personal income tax returns because they had no tax payable. Witnesses informed the Committee that when the federal government cuts income taxes, 38% of women do not benefit from these tax cuts. Also, women who do not pay taxes will not be able to benefit from tax measures such as a new child tax credit.[181]

The Committee learned that a gender responsive budget considers who the beneficiaries of a tax cut are and demonstrates how the benefits are distributed by income class and gender.[182] As Ms. Yalnizyan stated, such an analysis shows that “almost four in ten women will get nothing out of income tax at all.”

In fact, 58% of taxable Canadians do not get past that first bracket, which ends at $37,884. About 68% of women fall into this category and 50% of men. That means the $3 billion a year goes to the majority of taxable Canadian men and women.

Three-quarters of all Canadian men benefit from the tax cut agenda, but almost four in ten women will get nothing out of income tax at all. Why? It’s because they don’t earn enough money to pay taxes in the first place. Tax cuts are meaningless to four out of ten women.[183]

A gender responsive budget takes into consideration the opportunity cost of a tax cut since such a policy does not allow the federal government to spend on what is most important to both men and women.

Here’s what that money did not buy and what the women’s agenda has long sought: liveable cities, supports for families, pathways of opportunity, reduction of poverty, freedom from violence, and access to basic justice. That is not just good for women, ladies and gentlemen, that is good for us all.[184]

(b) Corporate Income Taxes

Finance Canada explained to the Committee that personal income tax measures “are more conducive to gender-type analysis than corporate-type measures.”

In the personal income tax system, when you make a change to it, you’re directly affecting individuals. So when you’re directly affecting individuals, you can do a gender-based analysis on that: What’s the impact for women? What’s the impact for aboriginal groups, etc.? But when you’re targeting a corporation, then it becomes more difficult to do the gender-based analysis because it’s a corporation as opposed to the people you’re actually trying to target.[185]

In contrast to Finance Canada’s approach to budget analysis, a gender responsive budget considers corporate income tax measures as conducive to a gender-based analysis. The Committee heard that such an analysis reveals the broader implications of corporate income tax reductions. For example, a decrease in corporate income taxes often translates into less federal government revenues and, hence, less available resources to address women’s needs for affordable housing and child care.[186]

Witnesses pointed out that individual taxpayers are disproportionately bearing the tax burden compared to corporations. Professor Lahey presented to the Committee her own calculations demonstrating the loss of revenue entailed through corporate tax reductions:  

My own personal calculations show that Canada lost $3.1 billion in tax revenue to overseas investments owned by Canadian corporations last year, and will every year. At the same time, I’ve estimated that another $3 billion is being lost in the domestic tax cuts. So there is a huge amount of money being released through the corporate sector that is draining the tax system quite dramatically. How does this compare to individuals? Well, when the corporations are not paying taxes, who’s left?[187]

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The Committee heard that given the tendency to reduce corporate income taxes, personal income taxes presently contribute more to federal government revenues than do corporate tax revenues.

In the 1960s, personal income taxes contributed about 30% of federal government revenues. Today they account for almost half: 47%. Look at corporate taxes in comparison. They’ve gone from about 19% of federal government revenues in the sixties to about 13% today. So it’s a sea change; there’s more reliance on income taxes. It’s like taxing capital less and taxing labour more.[188]

It is worth noting that governments have pursued policies of corporate income tax reductions in order to attract investment and to improve their competitiveness. However, in its publication, Tax Expenditures and Tax Evaluations 2007, Finance Canada found that it is difficult to prove “the existence of a relationship between taxes and investment with real-world data.”[189]

A gender responsive budget considers whether the current tax system is fair to women and whether women bear a disproportionate amount of the tax burden. As Professor Lahey remarked, such an analysis requires that the “combined effect of consumption and commodity taxes combined with the existing rate structure under the Income Tax Act”[190] be considered. After doing such an analysis, Professor Lahey informed the Committee that the “cumulative effect of the GST, PST, federal income tax, plus provincial income tax” has a “heavy and crushing burden” on women because of their lower incomes. [191]

One of the members of the Committee asked Finance Canada whether it would be possible to conduct a gender-based analysis of the tax system. For Finance Canada, such a review would be a “huge undertaking”:

Analyzing the tax system in its entirety from the perspective of gender-based analysis is a huge, significant undertaking. Currently the resources within the Department of Finance don’t exist to undertake that kind of analysis. If this were to become priority for ministers, then funding would have to be allocated to that resource to be able to undertake that kind of analysis, but currently the resources aren’t available within the department to be able to do that.[192]

Although the Committee recognizes that a gender-based analysis of the federal tax system would be a tremendous undertaking for Finance Canada, the Committee believes that such an analysis is required in order to address inequities in the tax system and to ensure the successful implementation of gender responsive budgets. Therefore:

RECOMMENDATION 14

The Committee recommends that Finance Canada undertake a gender-based analysis of new and current tax policy measures, including personal income, corporate income, and sales and excise tax measures; that it consider in its analysis the differential effects of spousal provisions and joint tax measures on women and men; that it develop a distributional analysis of the effects of these tax measures by income class and gender, and where applicable, breakdowns by age, relationship status, and dependents; that these analyses be periodically reviewed by the advisory panel of experts of Status of Women Canada; and that these analyses be applied to subsequent federal budgets.

RECOMMENDATION 15

The Committee recommends that Finance Canada develop solutions for addressing gender-based inequities in the personal income tax system; that it seek the expertise of academics and researchers as part of its analysis and review; that adequate resources be made available for this initiative; and, that it present a report on this review to the Committee by May 2010.

2. Tax Expenditures

The Committee heard that tax expenditures are considered by the federal government to be “back door” expenditures and as such, are often not accounted for.[193] Finance Canada is responsible for the tax expenditure portion of the budget and for reporting and evaluating these tax expenditures. Finance Canada publishes yearly its tax expenditure reports that are found on its website.[194] The reports do not include any gender breakdown. They only provide quantitative data and do not examine the differential impact these tax expenditures may have on men and women.

Witnesses indicated that tax expenditures have been increasingly used to fund social programs. Instead of directly spending on social programs, the federal government has put in place various subsidies for social programs. In essence, “rather than funding a particular activity or program by way of a direct grant, the subsidy is delivered through the tax system.”[195] For example, the cost of the Working Income Tax Benefit was $555 million in 2007, and for pension income splitting it was $665 million. The largest personal income tax expenditures are allocated to the registered retirement savings plans (RRSPs) at approximately $11 billion of net tax expenditures in 2007.[196]

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Because the budget incorporates a significant amount of tax expenditures, the witnesses recommended that the yearly published tax expenditure accounts need to become part of the budgetary process:

What we should do is require that in every budget there be a tax expenditure budget or account every year. People would see it and become much more informed […] in recognizing the large amounts of money that flow through tax expenditures for various public purposes. This would be a very important thing to let Canadians know. In fact, we spend as much, or almost as much, through the back door in tax expenditures as we do through the front door in direct expenditures, when you add them all up.[197]

Witnesses remarked that the tax system may not be the best mechanism for addressing the needs of women, particularly where senior women are concerned. The Committee also heard that, should the government opt for using the tax system as a mechanism for funding social programs, then it should consider the use of refundable tax credits.

The only kind of tax cut that can benefit lower-income women is something called a refundable credit […] 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.[198]

The Committee believes that, in light of the important role of tax expenditures in funding social programs, greater transparency is needed to better understand the impact of tax expenditures on women. Therefore:

RECOMMENDATION 16

The Committee recommends that Finance Canada include in all subsequent federal budget publications summary tables of both new and current tax expenditure measures.

RECOMMENDATION 17

The Committee recommends that Finance Canada review, assess and evaluate the differential impacts of tax expenditure instruments by gender and income class, and where applicable, breakdowns by age, relationship status, and dependents; including the impact of refundable tax credits; and, that this analysis be applied to subsequent federal budgets.