Improving gender equality: 5 ways tax could help – key takeaways from the 2023 OECD Report
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The recent OECD report “Joining Forces for Gender Equality: What is Holding us Back?” (the OECD report) considered international progress on gender equality in a wide-array of policy areas from education and employment to trade and energy. Nestled amongst the 33 chapters was one on “tax systems and gender” which considered the role tax policy can play in promoting gender equality and included a number of recommendations for policymakers in this area.
The Tax Policy and Gender Equality: A Stocktake of Country Approaches report by the OECD (2022) (the OECD stocktake) noted that “research shows that improving gender equality and reducing gender-based discrimination can generate substantial economic benefits, by increasing the stock of human capital, making labour and product markets more competitive, and increasing productivity”. So, it is clear that action needs to be taken, but how does the OECD report suggest that tax policy can help?
1. Removing explicit biases in the tax system that exacerbate gender bias
Explicit bias in tax systems can occur where tax provisions are expressly linked to gender, such as tax credits that are only available to men. Whilst the OECD stocktake indicated that explicit bias is rare, it does still exist (in seven of the 43 countries surveyed, although some of these involved tax benefits targeted at women). The most obvious step that policymakers can take to promote gender equality is to eradicate tax provisions that worsen gender biases. And even for those measures that are ostensibly for the benefit of women, these should be evaluated to ensure they do not act as a barrier for women (for instance if a tax credit targeted at mothers is taken away when she starts earning or earning over a certain amount, this may act as a disincentive to return to the workforce or to seek career progression).
2. Tackling the implicit bias in tax systems that may appear gender neutral
Implicit biases in the tax system can arise when a tax rule that makes no mention of gender has a disproportionate impact on one gender as a result of differences between women and men in terms of their underlying economic characteristics or behaviours. For instance, women are more likely to work part-time and/or be the second earner in the household– so tax measures that impact people with these characteristics are likely to have a greater impact on women.
Implicit biases are, of course, harder to identify, although there are some well-known examples. One is the joint taxation of personal income. This is where a tax system looks at combined household income, rather than taxing each individual separately. This can have the effect that the second earner pays a higher rate of tax on their income. The OECD report notes that (i) women make up more than three-quarters of second earners in almost all OECD countries and (ii) net personal average tax rates for second earners are higher than for single earners with the same earnings in most OECD countries. Interestingly, several of the countries surveyed for the OECD report acknowledged that shifting to individual taxation had had a positive impact on the female labour supply and enhancing equality. However, with 15 countries (out of 43) still referencing the household unit in some way, there is still work to be done.
Tax systems can also discourage part-time workers from moving to full-time work (what the OECD report refers to as “the part-time trap”). For instance, progressive tax rates and a loss of tax credits can mean it doesn’t make financial sense to transition from part-time to full-time work - a problem which can be even worse for families, where there might additionally be a loss of child benefits and extra childcare costs to factor in.
Interestingly, there is even a gender bias in relation to the ownership of assets, with the OECD report flagging that some countries (including the UK) had noted that due to the differences in the nature of income between men and women, the preferential taxation of capital income can create a risk of bias in favour of men. Could the European Commission’s vision of shifting taxation away from labour and towards resources and pollution not only help meet its environmental targets but also promote gender equality? They could be on to something here.
Half the countries surveyed acknowledged that implicit biases may arise in their system and, whilst accepting that there may be implicit bias is an important initial step, the more pressing question is what is being done to address this problem. Two-thirds of those surveyed had not yet done any analysis to examine or detect implicit bias and only five (including Spain) had guidelines on how to address bias in policy design. Clearly room for improvement.
3. Ensuring gender impact is evaluated when developing tax policy, including gender budgeting
The OECD report recommends that an assessment of the impact of taxes on gender should be included as a standard component as part of tax policy processes. Whilst many countries do use gender budgeting (i.e. assessing the effects of policy decisions across genders), few are required to do so for tax policy decisions. A shift to ensure that the gender impact is routinely evaluated in the revenue raising side of budgets (as opposed to just the spending side) could make a significant difference. In addition, the OECD stocktake suggests tax administrations should provide more guidance on taking gender equality into account in tax policy design.
4, Gathering more gender-disaggregated data
Of course, a fundamental challenge in tackling implicit bias is identifying such bias and this relies on the availability of gender-disaggregated data. The OECD report notes that countries have varying access to such data. Many have information on income split by gender, but few have gender-disaggregated information on labour-force participation, consumption or on property or capital ownership. Without this data, it is hard to see how the gender impact of particular tax policies can be properly evaluated. Addressing these data gaps will be therefore be key to enabling meaningful analysis to take place.
5. Diversity in tax leadership
One of the final points made by the OECD report is to acknowledge the work being done to address the underrepresentation of women in senior positions in tax administrations. The OECD Forum on Tax Administration has now set up a Gender Balance Network and the Global Forum on Tax Transparency has recently launched a Women Leaders in Tax Transparency programme. This not only helps improve the gender balance in the participating organisations, but also by having more diversity of views amongst decision-makers in tax administration, this may also encourage more discussions around the gender impact of tax policies.
Tax policy can’t single-handedly fix gender equality, but it can make things better. The OECD report has helped at least some tax administrations acknowledge there is an issue here and it provides a number of recommendations on how to improve things. What happens next will be key.