How Our Tax System Exacerbates Gender Inequality
There are significant gender differences in Australia today. More large companies are run by men named John than by women.
Women comprise fewer than one-third of judges and federal parliamentarians. Among full-time workers, women earn 85 cents for every dollar earned by men, which is like women working without pay for the first seven weeks of the year. Because mothers are more likely to take a career break to look after the kids, the lifetime earnings gap is larger still: a difference reflected in the fact that men have nearly twice as much in their superannuation accounts.
Yet when it was suggested a few months ago that we should consider the gender impact of tax changes, Scott Morrison called the idea ‘nonsense’.
If you think that Australia has more work to do on the path towards gender equality, then it seems strange to rule out the possibility that the tax system could have any role to play on that journey. The fact is, the tax system already exacerbates gender inequality in a number of important respects.
Women tend to face higher effective marginal tax rates than men. If you have a million-dollar income, you face a marginal tax rate of 47 percent (including the Medicare levy). But as Miranda Stewart and others have pointed out, the combination of tax rates and benefit phase-out means that women with children often face effective marginal tax rates of 70 or 80 percent.
If women were less responsive to tax rates than men, then this might be less of a concern for policymakers. But according to a literature review by the Australian Treasury, women are significantly more responsive to tax rates than men, particularly among those who are married. On average, the research suggests that a 10 percentage point increase in effective marginal tax rates reduces married women’s labour force participation by three percent. The impact on married men is zero.
When it comes to top tax rates, the existing disparity between the earnings of men and women means that cuts to the upper-income brackets disproportionately benefit men. The Parliamentary Budget Office’s analysis of the personal income tax cuts announced in the 2018 budget found that package as a whole was skewed towards men. This was particularly true of the third phase of the package, due to commence in July 2024. For example, increasing the lower threshold for the 45 percent marginal tax rate from $180,001 to $200,001 benefits men at a ratio of three to one. This parallels the impact of the cuts to services in the 2014 budget, which adversely affected women more than men.
Men are also significantly more likely to claim tax deductions than women. Men deduct about two dollars for every dollar of tax deductions by women. Women received 43 percent of the benefits of the capital gains tax discount and 38 percent of the benefits of negative gearing. Just 29 percent of the tax benefits of the dividend franking credit went to women. Even taking account of observable differences in income, age, occupation and marital status, a study by Peter Varela finds that men deduct more than women. This perhaps reflects men’s greater propensity to take chances: from motorcycling to requesting a pay rise, men have a higher tolerance for risk.
Beyond this, consumption taxes may have a gender bias. When the GST laws were written in 1999, they were mostly drafted by male public servants, reporting to a male-dominated cabinet, in an overwhelmingly male parliament. As a result, tampons and pads were subject to a 10 percent GST. Yet incontinence pads, sunscreen, nicotine patches and Viagra are exempt from the tax. In the nearly two decades since the GST has been in operation, this decision has come to seem increasingly archaic.
Under a Shorten Labor Government, we will restore the Women’s Budget Statement, which was formerly produced from 1984 to 2013. To measure unpaid activities such as caring, housework and volunteering, we will fund the Australian Bureau of Statistics to conduct a time use survey in 2020 and 2027. We will strongly support progressive income taxes, which are efficient (taxing less responsive higher income earners more highly) and equitable, being based on ability to pay.
Labor will close unjustified tax loopholes, prospectively restricting negative gearing to new built homes, prospectively halving the capital gains tax discount, and ending the situation of Australia being the only country in the world to provide cash refunds of dividend imputation credits for people who have paid no tax. We will also improve the gender equity of the GST by exempting tampons and pads, allowing states to make up the revenue by applying GST to a dozen natural therapies that are not supported by scientific evidence.
Gender gaps in Australia remain significant, and if we want our sons and daughters to grow up in a more equal world, it isn’t enough to just focus on how government spends money – we also have to look at how it raises revenue.
Andrew Leigh is the Shadow Assistant Treasurer. This is an edited extract of a speech delivered to the Women in Economics Network in Sydney.