How the tax system can narrow (or widen) the gender gap

Posted by on October 28, 2018 in Focus, Issue 89 Oct 2018

How the tax system can narrow (or widen) the gender gap

Andrew Leigh
Yes, Virginia, there is a Gender Gap
There are massive gender differences in Australia today. Women comprise just 26 per cent of ASX200 board directors and 7 per cent of ASX200 CEOs. There are more large companies run by men named John than by women.

Women make up just 28 per cent of the judiciary. In federal parliament, women comprise only 32.4 per cent of federal parliamentarians, ranking us 50th globally. A new analysis by Megan Hemming looks at the names of the current parliamentary seats. She finds that 92 are named after men, while just 15 are named after women (the remaining 43 are named after places and families).

Little wonder that 30 per cent of girls believe their gender is a barrier to a political career (compared with 4 per cent of boys). Among full-time workers, women earn 85 cents for every dollar earned by men. That’s like women working without pay for the first seven weeks of the year. The gender pay gap closed a little this year, but it’s still only a little smaller than it was two decades ago.

Women are twice as likely to be sexually harassed as men, and three times as likely to be a victim of intimate partner violence.[iv] Half of all mothers report experiencing discrimination while pregnant, on maternity leave, or after returning to work. Women do 19 hours of unpaid housework each week, compared with 6 hours for men. In superannuation, women’s balances are half those of men.
As Senator Jenny McAllister’s 2016 report put it, ‘A husband is not a retirement plan’.

Campaign groups have drawn attention to the ‘pink tax’, which sees women pay more for similar items. A study by the New York City Department of Consumer Affairs found that products for women or girls cost 7 per cent more than comparable products for men and boys, with the largest differences emerging for personal care products and adult clothing. The study even found that girls’ toys are more expensive than boys’ toys. This is especially unfair given that girls get 26 per cent less pocket money than boys.

If you’ve watched sport lately, you’ve probably watched men’s sport. Women’s sport accounts for just 7 per cent of televised sports coverage in Australia, which helps explain why it attracts less sponsorship and pays lower salaries.

So if you think that Australia has more work to do on the path towards gender equality, then it seems strange that you would immediately rule out the possibility that the tax system could have any role to play on that journey.

How Taxes Affect Gender Inequality
The tax system already exacerbates gender inequality in a number of important respects. First, women tend to face higher effective marginal tax rates than men. Effective marginal tax rates combine the impact of income taxes and benefit withdrawal.

If you have a million-dollar income, you face a marginal tax rate of 47 per cent (including the Medicare levy). But as Miranda Stewart and others have pointed out, women with children often face marginal tax rates of 70 or 80 per cent.

High effective marginal tax rates are not an accident. Nowhere is this more true than with child care. Because women have traditionally done the majority of unpaid child care, child care subsidies have a strong impact on women’s labour force participation rates. A child care means test based on family income risks sending a message to women who are married to higher-earning men: ‘don’t bother re-entering the workforce, it’ll cost you more than you’ll earn’.

According to a literature review by the Australian Treasury, women are significantly more responsive to tax rates than men. This is especially true 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 3 per cent. The impact on married men is zero. Similar results can also be seen in other advanced countries. Raise the effective marginal tax rate on married women, and they drop out of the labour force in droves. Raise effective marginal tax rates on married men, and the effect is close to zero.

The existing disparity between the earnings of men and women means that cuts to top tax rates disproportionately benefit men. We know from work by Hiau Joo Kee that the gender pay gap grows larger towards the top of the wage distribution. For workers in the bottom tenth of the wage distribution, there is effectively no gender pay gap. For workers in the top tenth, the gender pay gap is 27 percentage points.

Analysis by Miranda Stewart, Sarah Voitchovsky and Roger Wilkins used 2013-14 tax office data to look at the gender composition of the top 10 per cent of adults – those with individual incomes over $94,000. They found that just 26 per cent of this group were women. This makes the Australian top 10 per cent more male-dominated than in Spain, Denmark, Canada, New Zealand, Italy or the UK. A similar story emerges from wealth holdings, with the richest 200 Australians being heavily male dominated.

Because high-income earners are mostly men, cutting top tax rates widens the gap in take-home pay between men and women. 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. Removing the 37 per cent marginal tax rate (so that all income from $41,001 to $200,000 is taxed at a marginal rate of 32.5 per cent) benefits men over women at a ratio of two to one, while increasing the lower threshold for the 45 per cent marginal tax rate from $180,001 to $200,001 benefits men at a ratio of three to one.

Men are significantly more likely to claim tax deductions than women. The average male taxpayer claims $3200 in deductions, while the average female taxpayer claims $1900, meaning that men deduct about two dollars for every dollar of tax deductions by women. Women received 43 per cent of the benefits of the capital gains tax discount and 38 per cent of the benefits of negative gearing. Just 29 per cent of the tax benefits of the dividend franking credit went to women.

Businesses owned by women tend to have lower turnover than businesses owned by men. Among unincorporated enterprises, the average profit received by women is half as much as the average profit received by men. Among incorporated enterprises, those run by women have on average two-thirds the income of those run by men. This suggests that policies targeted towards small (or even micro) businesses may have a disproportionate impact on women entrepreneurs.

Consumption taxes may have a gender bias. The best-known example of this is the tax on tampons and sanitary pads – effectively a tax on women. When our 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 per cent GST. Yet incontinence pads, sunscreen and nicotine patches – even 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.

A Feminist Tax Agenda
So, what principles should guide the taxation policies of a government that seeks to narrow the gender gap?

First, as the saying goes, ‘what gets measured gets done’. In 1984, the Hawke Government initiated the women’s budget statement, a document that continued to be produced through the subsequent Keating, Howard, Rudd and Gillard Governments. But when the Abbott Government won office in 2014, it ceased. From opposition, Labor has continued to produce a ‘shadow’ women’s budget statement. If we win government, we will restore this important piece of analysis.

We also need to do a better job of measuring gender gaps. Perhaps the most gendered survey carried out by the Australian Bureau of Statistics was the time-use survey, which measures unpaid activities such as caring, housework and volunteering. When Australia conducted our first national time use survey in 1992, we were pioneers. But it has not been done since 2006 – it needs to properly funded since as Marian Sawer points out, ‘it was feminists who campaigned for national time-use surveys to measure the volume and distribution of unpaid work’.

Second, we should maintain a progressive income tax. As Meredith Edwards and Miranda Stewart argue, ‘A progressive income tax on individuals with marginal rates that rise as income rises is important for women’s equality because women earn less than men… a progressive income tax is both efficient (taxing less responsive higher income earners more highly) and equitable, being based on ability to pay. The tax system operates in the context of gender-unequal workforce outcomes in both wages and hours, and with the lion’s share of part-time work done by women.’

Third, we should close unjustified tax loopholes. Martin Feldstein, who chaired the Council of Economic Advisers for Ronald Reagan, and was not one of the most progressive economists. made the point that reducing tax expenditures raises revenue more efficiently than increasing tax rate. Tax expenditures tend to be much less fair than budgetary expenditures. So closing loopholes is more equitable than cutting spending.

Fourth, we should reject attempts to switch the tax mix on to consumption. Right-wing lobby groups have long championed raising the GST. After becoming Treasurer, Scott Morrison spent summer 2015-16 toying with the idea. To do so would be to systematically disadvantage Australian women, given the regressive nature of consumption taxes. We can also improve the gender equity of the GST by exempting tampons and pads. We could replace the $30 million currently raised by taxing sanitary products by applying GST to 12 natural therapies that are not supported by scientific evidence, such as herbalism and naturopathy.

Good policies for women are more likely to emerge when there are more women in the room. Women now comprise 46.3 per cent of Labor’s federal representatives, about twice the share of the Liberal Party (23.5 per cent). Just 9.5 per cent of National Party parliamentarians are women. No political party is perfect, but when Julia Banks last week announced that ‘bullying and intimidation’ had led her to retire from politics after just one term, I couldn’t help thinking that the bad behaviour was partly a function of the Liberals having fewer women in the party room now than in 1998.

Gender gaps in Australia remain significant, and if we want our sons and daughters to grow up in a more equal world we have to look at government raises revenue as well as how it spends.

High effective marginal tax rates make it harder to combine a fulfilling career with raising a family, so we need to ensure that our transfer system and child care policies do not throw up unnecessary barriers. Making the income tax system less progressive will widen the gender gap, while closing unnecessary tax loopholes will tend to narrow it. Similarly, higher consumption taxes have a more adverse effect on women than on men.

We also need to think about the role of women in key economic roles. As Chris Bowen pointed out last year, Australia has had a female Prime Minister and a female Governor-General. Every state bar one has had a female Premier, and we now have a female Chief Justice. Yet ‘We have never had a female secretary to the Treasury. Or a female Reserve Bank governor. Or deputy governor. Or female chair of the ACCC. Or APRA. Or ASIC. Or the Future Fund. Or the Productivity Commission.’ We need to change that.

Andrew Leigh is the Federal Member For Fenner and Shadow Assistant Treasurer. This is an edited version of a talk given to the Women In Economics Network Seminar, Sydney 7 September 2018. The full text is at

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