In a climate of worldwide government deficits due to the COVID-19 pandemic, speakers at an OECD webinar on tax and gender put forward the economic case for improving gender equality through tax policy. There is a moral imperative to use the tax system to push for equity, but doing so could also help countries around the world to climb out of a pandemic-induced recession.
“Gender equity has direct implications for economic growth, but not ensuring gender equality can have a direct economic cost,” said Michelle Harding, senior tax economist and head of the Tax Data and Statistical Analysis Unit at the OECD Centre for Tax Policy and Administration.
Countries’ tax revenues have decreased during the pandemic, and the shortfall affects some regions more than others. Federico Bonaglia, deputy director of the OECD Development Centre, said that the average tax-to-GDP ratio of African countries is 16.5% and of LATAM is 23%, compared to 34% in the OECD countries. “We are talking here of a huge resource gap,” he said.
Encouraging more women to enter, or remain in, the workplace, through measures such as affordable childcare and parental leave, would increase the number of people contributing to the tax base.
In addition, Bonaglia suggested there is a tax morale argument for improving gender equality in the labour market. “Women are better taxpayers, they are more willing across the world to comply with the tax system,” he said.
However, governments must also tackle the prevalence of the informal economy, particularly in developing countries, because informal workers often do not pay tax.
Bonaglia said that while 18-20% of work is informal in advanced economies, the proportion is more like 70% in developing economies – and a large part of this 70% is made up of women. These workers do not directly contribute to the tax base, and they are also excluded from benefits such as healthcare and pensions.
Making tax work for everyone
In addition to discussing how improving equality in the labour market could increase tax revenues and aid an economic recovery, the OECD speakers said policymakers must ensure that women are not disadvantaged by tax policy.
Women tend to own fewer corporate shares, receive smaller shares of dividends and capital gains, and be under-represented on corporate boards and among senior managers. These inequalities mean that corporate income tax policy will impact men and women differently.
Men are more likely to benefit from measures such as reductions in the corporate income tax rate via post-tax distributions and bonuses, or personal income tax deductions for dividend payments.
It is also necessary to examine the types of business that receive tax incentives, particularly because women entrepreneurs tend to own smaller businesses than men.
Monika Queisser, senior counsellor and head of the Social Policy Division at the OECD Directorate for Employment, Labour and Social Affairs, added that governments should consider the tax treatment of second earners. In some countries, women are better off staying at home to raise a family than going out to work.
“How second earners are treated determines whether it’s worth women going into the labour market at all,” said Queisser.
These considerations should inform decisions about how taxes should be designed to increase revenues. Governments can achieve this by gender budgeting, which entails analysing a budget’s impact on men and women and working to correct any disparities.
H.E. Ambassador Anna Brandt, permanent representative of Sweden to the OECD, and co-chair of the OECD Friends of Gender Equality Plus, said that Sweden, which boasts the world’s first self-declared feminist government, has included a detailed annex on gender equality in its budgets since 2003.
Swedish policies such as generous parental leave and affordable childcare have created a country in which the proportion of women in work is the second highest in the EU, at nearly 80%.
Aside from the question of ethics, gender budgeting is economically sensible because it will create a stronger workforce. Jon Blondal, head of the Public Management and Budgeting Division at the OECD Directorate for Public Governance, pointed out that many OECD countries are struggling with an ageing population and a shrinking labour force. “Gender budgeting is almost the solution to your problems,” he said.
Measures like gender budgeting are particularly crucial at a time when governments are making big tax policy decisions to try to recover the costs of the pandemic. If gender equality is not considered, women could emerge from the COVID-19 crisis worse off than ever.
The need for better data
Unfortunately, panellists stressed that there is a lack of crucial data that would help tax policymakers to identify and respond to problems regarding women’s participation in the labour market and the representation of their interests in tax strategy.
“There are a number of key gaps on women’s economic participation and its interaction within the tax system that are impeding analysis,” said Harding.
Collecting this data would help tax policymakers and regional tax authorities to design policies that improve gender equality. Explicit biases in tax policy are fairly easy to identify and to remove, but implicit biases can arise anywhere and are harder to spot.
However, Harding said that there are some “usual suspects” that tax policymakers can investigate to see if they have a gendered effect:
How does income tax on second earners, and the impact of family tax credits on second earners, affect women in the labour market?
Does the country have individual personal income tax, or do married couples complete a return together?
Are tax incentives for businesses concentrated in male-dominated sectors?
Do tax incentives tend to benefit larger businesses, in which women are less represented than men?
How can the tax system be used to improve the balance of paid and unpaid work?
How can tax authorities ensure that women have access to their own information? This could mean working to close the digital gender gap, or requiring both partners in a marriage to sign joint tax returns.
Although experts bemoan the lack of data, there is plenty that governments can do to investigate and correct gender biases in tax policy.
In tandem with other measures, this would improve the opportunities available to women at a time when women’s place in the labour market is particularly at risk. Analysis by McKinsey has shown that women’s jobs are 1.8 times more vulnerable to the COVID-19 crisis than men’s jobs.
However, feminist tax policy would also allow more women to contribute to the tax base, shoring up their countries’ finances, decreasing the resource gap, and offering a route out of the COVID-19 recession.
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