How tax inequity hurts women

You have to hand it to wealthy business owners. They know how to work the system to maximize their bottom line and pay as little tax as possible. Why shouldn’t they? It’s completely legal.

However, it’s not only fundamentally unfair to those who pay their fair share, it also hurts poor Canadians — most of them women.

What’s often lost in the heated debate over the government’s proposed changes to small business tax rules is how the actions of a wealthy group of Canadians keep others trapped in poverty due to an abundance of precarious, low-paying jobs coupled with declining resources to pay for much-needed public services. Women are especially affected by this trend.

Consider: Women make up 60 per cent of minimum wage earners in Canada, earn on average 74 cents for every dollar men earn and spend 50 per cent more time than men on unpaid care work. Women’s cheap (or free) labour fuels the engine of economic growth here in Canada and abroad, but they see few rewards and certainly don’t have the luxury of moving their money around to minimize the taxes they pay.

Canada’s tax system has become significantly more regressive in recent decades, with cuts for corporations and tax evasion on an appalling scale. That leaves lower-earning Canadians to make up the public revenue shortfalls by paying much higher taxes. Politicians and pundits have long argued that businesses reinvest the money they save through tax cuts back into the economy — yet much of it remains unspent, gathering dust on corporate balance sheets or lining the pockets of the wealthy. The promised ‘good jobs’ are just not coming.

The result over time of a drop in tax revenue has been a measurable reduction in the public services upon which women rely in particular — everything from affordable care for children and seniors to social protection and support programs for education and health. In fact, the current federal government budget is one of the smallest in the past 60 years. Canada now ranks 25th out of 35 OECD countries when it comes to the ratio of tax revenue to GDP.

The global race to the bottom for corporate tax rates is hurting all countries. Canada has been no exception. Governments tend to make up the shortfall with higher consumption taxes, which disproportionately affect poor women, especially in developing countries.

The proposed changes will not be a quick fix for a system still hopelessly rigged in favour of the rich. But they’re an important step towards long-overdue tax fairness in this country.

It’s clearly time for a better redistribution model to ensure that economic growth leads to shared prosperity. Closing these tax loopholes will by no means push small business owners into poverty. The aim is to stop them from ‘sprinkling’ income to family members, converting income to capital gains and sheltering cash inside company coffers to make even more profits from investments.

Income sprinkling is especially problematic for gender equality. It encourages high earners (men, in most households) to split their income with their low- or no-income spouses (generally women). It basically serves as an incentive for spouses of high earners to continue earning little or no income. The result is a lower rate of female labour force participation.

The proposed changes will not be a quick fix for a system still hopelessly rigged in favour of the rich. But they’re an important step towards long-overdue tax fairness in this country.

The Liberals say their tax measures will not make a difference for business owners making under $150,000. Considering that two-thirds of businesses in Canada earn less than $73,000 a year, that means most small business owners in the country will not be left worse off by these changes — and more money will be available for public programs. That seems like a win-win for women, especially when women in female-owned businesses also face a significant income gap in comparison to male-owned businesses.

Now imagine what the government could do with these additional resources to advance gender equality — to walk its feminist talk.

Finance Minister Bill Morneau estimates that just one of the measures — stopping income sprinkling — would bring in an additional $250 million. That alone could go a long way towards providing women’s organizations with the resources they need to bring Canada back to the top of the UN gender equality index.

Increasing investment in the caring economy would also have huge benefits for gender equality in particular. Women would spend less time providing free care, seniors would be better served and all Canadians would benefit from the resulting increase in overall employment and economic growth. Canada also could make a real difference by putting money behind its feminist international assistance policy.

The government’s proposed tax measures represent just early efforts in addressing the problem of extreme inequality in Canada, and the government should not stop there. Many more loopholes can and should be closed to level the playing field once and for all. Canada’s leaders can set a path for progressive tax policies that reduce inequality and advance gender equality at home and abroad.

Diana Sarosi is Women's Rights Policy & Advocacy Specialist at Oxfam Canada.  

This article first appeared in iPolitics.