Research | Queen’s University Canada

A taxing issue

A taxing issue

Q: Your Parkland Institute study revealed some surprising findings around the impact of income tax cuts and other tax provisions on women’s economic independence. Can you explain what you mean by the “Alberta Disadvantage”?

A: Since the mid-1990s, many government officials have promoted the idea that tax cuts make for faster and better economic growth. The federal government implemented “Canada’s Tax Advantage” tax cut program, and Alberta later followed with the more extreme “Alberta Advantage” in the form of one flat 10% tax rate for everyone, companies and people alike. That left Alberta heavily dependent on oil revenues, and it overtaxed those with low incomes at the same time that it gave huge tax cuts to the wealthiest.

In the Parkland Study, I was able to take a snapshot of how the combined federal and provincial tax/transfer system and the provincial economic focus on oil and gas revenues had affected women over the last fifteen years. I discovered that the “Alberta Advantage” had produced the largest gender gap in terms of both pretax and after tax incomes in Canada, and that the total tax system in Alberta redistributed much less to women – whose average incomes everywhere are still much lower than men’s – than the tax systems in the rest of Canada.

Compared with the years before the “Alberta Advantage” was implemented, women in Alberta had become much more economically dependent on spouses and partners, and, since the early 2000s, have married earlier, and have had more children, lower rates of post-secondary education, lower incomes, less access to employment insurance and pensions, and higher poverty rates.

Q: What are some of the problems you have identified with respect to income splitting?

A: Income splitting, which is a type of joint tax or benefit provision, can create fiscal disincentives to paid work for an amazingly large number of people in all walks of life. In Alberta specifically, with the large demand for highly skilled predominantly male labour and professions such as engineering and industrial technologies, demand for women’s labour had fallen quite significantly in the absence of any employment or pay equity laws. So the spread between average men’s and women’s incomes creates a bias in favour of women doing unpaid domestic and care work. In that situation, income splitting gives supporting partners tax credits for theoretically sharing their income with their partners. These tax benefits or tax credits are quite attractive – up to $2,000 per year – and help justify women continuing to concentrate on unpaid work and spending less time in paid work.

In a very real way, with these income splitting tax benefits, women’s work “does not pay,” and it is then seen as natural and logical for women to put less time in on paid work than in unpaid work.

Not surprisingly, one of the findings in the Alberta study is that Alberta women spend more hours on unpaid work each week than women elsewhere in Canada, and double that of men. With an average of 35 hours of unpaid work each week and no affordable quality child care, it makes it very difficult for women to work full-time, particularly in demanding careers.

[Kathleen Lahey]

Q: What is the goal of implementing an income splitting policy?

A: Income splitting and joint tax or benefit provisions are a quick way to give people the impression that their government cares about them. But it also appeals to those who think that the 1950s style “Leave it to Beaver” family is a good thing.

Unfortunately, this image is outmoded. Relatively few families can afford to live on just one income and the much smaller part-time earnings of a second worker. Also, relationships typically do not last forever in contemporary societies. When women who may have thought that income splitting is a good arrangement run up against the cold realities of divorce, separation, or bereavement, and realize that they failed to protect their own human capital, they learn often too late that they have become economically disadvantaged by adopting that lifestyle.

Q: So what policies do work?

A: I’m involved in a set of multinational projects right now where we are trying to see which cluster of tax and benefit packages tend to produce the greatest human well-being in the long run. For quite a long time people were saying the Scandinavian countries really have it solved, but they have now started doing what other advanced economies have been doing: cutting taxes, cutting spending, passing budgetary austerity laws, privatizing public services, and increasing education costs. As a result, they are starting to experience the same problems that Canada is having.

These research projects focus on how tax and spending laws affect different groups of people, and have identified several key points. First, income inequality between the richest 10% and the rest of the population is growing rapidly, and this is particularly difficult for women, racialized individuals, Aboriginal communities, immigrants, and disabled persons. Second, government revenues as a percentage of GDP have been shrinking everywhere, and it is becoming clear that this makes it hard to maintain solid health care, education, income security, and pension programs. Privatization of these programs does not work. People cannot possibly live on their earnings and expect to be able to save enough to weather all of life’s challenges – health crises, adequate education and training, unemployment, and retirement planning – just with their own personal savings.

Human beings are extremely adept at working collectively to maintain community stability. The goals of my research are to identify revenue and spending policies that can best ensure that no one has to face those challenges on their own. Government revenues are essential to maintaining durable public services and public workers, high quality education, health services, etc. High levels of health and education correlate with economic durability at all levels – individual, household, and national.

Q: What’s next for you?

A: I’m very pleased to have formed some exciting international working relationships with colleagues from around the world. I recently participated in a grant application under the European Commission Horizon 2020 competition, which raised €2.5 million to analyze how the EU has been handling issues of taxes, benefits, social inclusion, economic development policies, and gender equality issues. This will result in making recommendations on a range of issues, from environmental and corporate taxation to tax compliance issues and tax competition between countries, as well as how the EU itself can raise enough revenue to fund its own governance activities.

Another project, funded by the Swedish Wallenberg Foundation, will look specifically at factors affecting women's access to paid work and capital. Both projects are a four year commitment and involve more than a dozen countries.

Learn more about Kathleen Lahey's research