FEWO Committee Report

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Committee Report

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APPENDIX A
GBA of Selected Tax Policy Changes
for Budgets 2006 and 2007

A. CUT IN THE GOODS AND SERVICES TAX RATE

The 2006 Federal Budget announced a 1% reduction in the rate of the Goods and Services Tax (GST) from 7% to 6% effective July 1, 2006. The October 2007 Economic Statement announced another reduction in the GST rate from 6% to 5% effective 1 January 2008. According to the Economic Statement, the fiscal impact of such measure was expected to be $1,360 million in 2007-2008, $6,020 million in 2008-2009 and $6,285 million in 2009-2010.[1] The Committee received gender-based analysis of the impact of these cuts from Finance Canada and from Professor Kathleen Lahey. Table 1 presents the anticipated impact of the GST reductions on women and men as presented by Finance Canada and Professor Kathleen Lahey.

Table 1 – Cuts in the Goods and Services Tax Rate[2]

Finance Canada
(Excerpts from submission)

Professor Kathleen Lahey
(Excerpts from submission)

- Reducing the GST benefits all consumers, even those without enough income to pay income taxes.

- The actual impact of the GST by gender is difficult to determine accurately, because data is not available to allocate GST paid within households. That said, as men tend to have higher incomes than women, their expenditures and, therefore savings from the GST reduction are likely to be greater.

- However, since lower income people consume a greater proportion of their income than those with higher incomes, reducing the GST by 1% will provide a higher benefit to women than to men in relation to income.

- Because the GST is a flat-rated tax, it is regressive in impact: It takes a larger percentage of income from those with lower incomes than it does from those with higher incomes. However, the two successive 1% rate cuts are not ‘progressive’ in impact; they are also regressive: these tax cuts give the largest tax benefits to those who have the most to spend and who do spend the most—those with higher incomes. These cuts thus mainly benefit men.

- GST revenues grow as consumption increases. Thus the GST accounts for an increasing share of overall federal revenue. As the share of revenue raised via the GST increases, the share generated by other taxes decreases. Since the GST came into effect in 1992, the share of federal revenue generated by the GST increased from 12% to 16% in 2004-05. This share will continue to increase; between 2000 and 2005, the total revenue generated by the GST grew twice as fast as the rate of increase of total federal revenue—33% versus 18%.

- As the share of revenue collected via the GST increases, the overall regressivity of the total tax system also increases. (The personal income tax is acknowledged as being the only slightly progressive tax in Canada; as the share of revenue collected via income taxes falls, the regressivity of the rest of the tax system increases.)

- Because most women’s incomes fall into the two lowest income quintiles, they have less money to spend than men. Thus the bulk of the tax benefits from cuts to the GST rate goes to those with higher incomes—men—while few of those tax benefits go to women. Those in the lowest income quintile receive a tax benefit of only $140 per 1% cut in the GST tax rate, for a total tax benefits of $280 to date. In contrast, those in the highest income quintile receive tax benefits of $622 per 1% cut in the GST tax rate, or $1,244 to date.

- These GST rate cuts also have implications for federal spending directed at women’s social and economic needs. The federal government estimates that each 1% cut to federal revenue costs it approximately $6 billion in foregone revenue per year. This means that the 2% cut now in place will remove some $12 billion from federal revenues in 2008 and in each year thereafter.

- Some 78.8% of that $12 billion is going into the pockets of those taxpayers in the top three quintiles, while only 21.2% of that foregone revenue will go to those in the bottom two quintiles. Average women’s incomes fall squarely into the two bottom quintiles, and, statistically, will rarely fall into the third quintile.

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B. CUT IN THE PERSONAL INCOME TAX RATE AND INCREASE IN THE BASIC PERSONAL TAX EXEMPTION

According to the 2007 October Economic Statement, the lowest personal income tax rate will be reduced to 15% from 15.5 %, effective 1 January 2007. The fiscal impact of such measure is expected to be $1.570 billion in 2007-2008, $1.285 billion in 2008-2009 and $1.300 billion in 2009-2010.[3]

The amount that all Canadians can earn without paying federal income tax will be increased to $9,600 for 2007 and 2008, and to $10,100 for 2009.[4] The fiscal impact of such measure is expected to be $1.885 billion in 2007-2008 and 0.565 billion in 2008-2009. [5] Table 3 presents the GBA of the anticipated impact of this measure on men and women as presented by Finance Canada and Professor Kathleen Lahey in their submissions to the Committee.

Table 2 – Personal Income Tax Cuts[6]

Finance Canada
(Excerpts from Submission)

Prof. Kathleen Lahey
(Excerpts from Submission)

- Budget 2006 contained two personal income tax relief measures that would generally benefit all taxpayers:

A permanent reduction in the lowest personal income tax rate from 16 per cent to 15.5 per cent; and

Increases in the basic personal and the spousal amount to levels above those that were legislated for 2005, 2006 and 2007.

- Together these measures will provide more than $2B in personal income tax relief in 2007 or almost 40% of the personal income tax relief provided in that year by Budget 2006.

- These measures will reduce the personal income taxes paid by men (in 2007) by an average of $130, and by $114 for women. Women will receive a larger percentage tax reduction (2.5%) than men (1.5%).

- This change provides virtually no tax relief for those with the lowest incomes—and instead gives the biggest tax benefits to those with the largest incomes. Women predominate in the low-income brackets, and men predominate in the highest income brackets. Thus this tax cut leaves women with little tax relief and gives the greatest tax relief to the highest income taxpayers—mainly men.

- 38.7% of all the women who file tax returns have no tax liability at all. (The comparable number for men is 24.4%.) Overall, 62.9% of the ‘no tax liability’ returns are filed by women. This means that any tax measure that is said to benefit low-income taxpayers will always exclude many more women than men, and will be of no use whatsoever to a surprisingly large number of all low-income taxpayers (31.8% of low-income tax returns are non-taxable).

- Given the way the personal income tax rates in the federal Income Tax Act work, it is absolutely impossible to give lower income taxpayers ‘substantially greater’ tax reductions or tax benefits by cutting the lowest tax rates.

- The effect of this type of tax change is exactly opposite:

Reducing low tax rates will always give the biggest tax benefits to those with the highest incomes.

The higher the income, the bigger the tax benefit.

This is the ‘upside down’ effect that has been so long discredited in Canadian federal income tax policy because it is clearly unjust.

[1] Finance Canada, Strong Leadership. A Better Canada. Economic Statement, October 30, 2007, p. 88.

[2] Information for this table is derived from the following documents submitted to the Standing Committee on the Status of Women: Finance Canada, “Gender Analysis of Budget 2006 Tax Policy Changes” and Professor Kathleen Lahey, ‘Where are the Women? Gender Analysis of Direct Expenditures, Tax Revenues, and Tax Expenditures in Budget 2008’, March 13, 2008.

[3] Finance Canada, Strong Leadership. A Better Canada, Economic Statement, October 30, 2007, p. 88.

[4] Ibid., p. 11.

[5] Ibid., p. 88.

[6] Information for this table is derived from the following documents submitted to the Standing Committee on the Status of Women: Finance Canada, “Gender Analysis of Budget 2006 Tax Policy Changes” and Professor Kathleen Lahey, ‘Where are the Women? Gender Analysis of Direct Expenditures, Tax Revenues, and Tax Expenditures in Budget 2008’, March 13, 2008.

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