Evidence of meeting #5 for Status of Women in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was budgeting.
A recording is available from Parliament.
Liberal
The Chair Liberal Yasmin Ratansi
Ladies and gentlemen, we had better start the meeting. Dr. Philipps, who is here through video conferencing, has to leave by 4:30. Everybody must be aware of that.
We will ensure that we hear Dr. Philipps' presentation. Then we'll hear Dr. Lahey's presentation, followed by Q and A.
Dr. Philipps, we are ready to hear you.
Professor Lisa Philipps Associate Professor, Osgoode Hall Law School, York University
Excellent.
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.
Liberal
The Chair Liberal Yasmin Ratansi
Thank you very much.
We'll now go to Professor Lahey for 10 minutes.
Thank you.
Professor Kathleen Lahey Professor, Institute of Women's Studies, Queens University
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.
Liberal
The Chair Liberal Yasmin Ratansi
Thank you very much.
In light of the fact that Dr. Philipps has to leave by 4:30, we have approximately 37 minutes. Can we keep our questions either focused to Dr. Philipps or keep them succinct so we can get in as many questions as possible? Thank you.
We'll start off with Madam Minna.
Liberal
Maria Minna Liberal Beaches—East York, ON
Thank you, Madam Chair.
I'm going to split my time with Mr. Pearson, because he has to go early. I'll limit my questions to Professor Philipps, because I know she has to leave, and I have a series of them for Madam Lahey, but hopefully I'll ask them in the subsequent round.
Thank you, Professor Philipps, for joining us today. This is fabulous information that really makes a big difference and helps our work tremendously.
You stated earlier, with respect to the splitting.... I'll preface it with this. One of the things I have suggested a few times--not just me, but my colleagues and I--is that if we're going to do income splitting, it needs to split the actual pension, so that 50% of the pension physically actually goes into the pocket of the other spouse, which in most cases is the woman, but not in this case, which doesn't do that. For seniors—except for those who are single, of course, whom it doesn't really help—overall, is income splitting something we ought to be totally leaving alone? There are so many people that are left behind that it doesn't really help, and it is not a way to address the issue of income shortage. Could you give a broader answer to that?
Prof. Lisa Philipps
I think one would never want to advocate it as a measure to help the poorest seniors, because it will leave them out. However, it is true that currently we do allow people to split their CPP, for instance, with a spouse, and we allow that to be reflected in a lower tax burden for the person who shares his or her pension. We also allow spousal RRSPs, so if you're willing to save money in an RRSP that is in your spouse's name and belongs to your spouse, you can save some tax. We do allow it already for certain types of retirement income if there is a real transfer of those assets of the pension over to the spouse.
An argument could be made for extending that to employer-based pensions, the kind of pension income that is covered now by the pension splitting rules, but it would require, as you say, that there be a real sharing, a real shift of title over those pension assets over to the spouse.
Liberal
Maria Minna Liberal Beaches—East York, ON
Thank you.
I think I'll flip it over to my colleague, Glen, because hopefully I'll have some time to get back to you.
If you have any time left, I'll take it back.
Liberal
Glen Pearson Liberal London North Centre, ON
Okay. Thank you.
I thank Madam Minna for giving me some time.
Thank you for coming, Madam Philipps.
I'm really interested in some of the international stuff that was sent along to us as part of this package. We have places like Malaysia, Mexico, Korea, and Zimbabwe all doing this gender budget analysis and stuff that we're doing. I'd be interested to know how many of the G-8 countries actually have that as part of what they do.
Prof. Lisa Philipps
I'm afraid I can't answer with a precise number off the top of my head. However, I can tell you that England has moved increasingly to do it. It started with an external group, but the government is increasingly internalizing it. The U.S. does not do very much of this, to the best of my knowledge. I'm sorry I can't give you a better answer about the G-8. However, I would like to just observe that Canada has endorsed gender budgeting for countries for which it provides foreign assistance.
So we have recognized the merits of it for others.
Liberal
Glen Pearson Liberal London North Centre, ON
That's right. I know that when Madam Minna was CIDA minister, that was very much part of what she was fighting for, which brings up the second part of my question.
I've done some development overseas in various countries, but especially in Africa, and it's true that CIDA, in providing funding for various programming, includes gender equality as part of what they have to do if they're going to get the money as an agency. The reason I'm asking that is because in those nations advocacy has become very important. Those NGOs have advocated at a community level to tribal chiefs or councils or whatever it is, and also at a national government level. It seems to me that you would not expect to have gender-based budgeting in places like Malaysia, but we do because of advocacy, from what I've been able to see.
Do you think that in Canada--it would seem to me--advocacy is still very important? For some reason, we haven't got this message. I would presume that if they can get it in Malaysia and in places like Mexico.... But people aren't getting it here yet, and it might be because the advocacy component is limited. Could you just draw attention to that?
Prof. Lisa Philipps
I think you're absolutely right, and this really goes to what I said about external involvement. There have to be civil society agencies that will create expectations, insist upon gender analysis, and provide independent analysis to review what the government does in order for the government exercise to happen in the first place and then to be effective. It's of great concern to me that women's organizations in the country at the moment are somewhat demobilized due to funding cuts. That is certainly hampering efforts.
However, there are a couple of groups that have really focused on this issue of gender budgeting and are making it a priority with their limited resources. It would be wonderful if government agencies could somehow work together with them to maximize those efforts.
Liberal
Liberal
Maria Minna Liberal Beaches—East York, ON
Professor Philipps, in your presentation you talked about the impacts of tax expenditures. I did some study on tax expenditures around 1994-95. I don't support them. I don't think that's a way to deliver any social program.
I wonder if, in your work, you have done any amount of analysis on tax expenditures with respect to the ones that are intended to deliver social programs and if that material would be available for us to see the impact. I don't think there has been one done by the government that I'm aware of.
Prof. Lisa Philipps
I have done some work on that, which I would be happy to pass on to the committee. My major concern about tax expenditures is that the form in which they're delivered often excludes women because so many of them are low income or no income. If you're not paying income tax, if your income is below that threshold, you cannot access most of the tax expenditures in the system. Your only possibility is to try to access them indirectly through a breadwinner with whom you live. We simply know this is not an adequate guarantee of women's financial security. Women need access to their own resources as individuals.
I would be happy to pass on what I've done to your committee. That would be great.
Liberal
Bloc
Nicole Demers Bloc Laval, QC
Thank you, Madam Chair.
Ms. Philipps, Ms. Lahey, thank you for being here with us. Ms. Philipps, I have a first question for you.
What action should the government take on a priority basis to ensure that the federal budget is fair for women?
Prof. Lisa Philipps
I must apologize. My French is not good enough to fully understand your question or to respond in French.
Is there anyone who could translate for me?
Bloc
Nicole Demers Bloc Laval, QC
What main action should the government take in order to make the next budget equitable for women?
Liberal
The Chair Liberal Yasmin Ratansi
Translation is working, so you'll be fine if Madam Demers speaks in French.
Prof. Lisa Philipps
Yes, I did understand the question posed in English.
My answer would be that the Department of Finance needs to incorporate a gender analysis and to explain to the public how it has done that and where. It hasn't been able to. It needs to reveal that. We need to know that the Department of Finance, who are the tax policy experts in the country, are taking this into account, and they need to discuss that with Parliament, with parliamentary committees, with the public, and take that on. So far they have not been very eager to do so. Whatever they have done they've not been willing to share with outsiders. It's very difficult to make any progress on the issue without their cooperation.