On 29 October 2015, during the conference entitled "Individual taxation and employment" organised in Luxembourg by the Luxembourg Presidency of the Council of the EU, a number of European experts in the field of tax and social policy gave updated presentations on individual taxation and the degree of individualisation in Member States. They also studied the link between the degree of individualisation and its repercussions on the employment of women. Finally, they spoke about the characteristics of transition phases in order to determine the factors which create a tax environment that fosters gender equality.
The question of "neutrality between the sexes" in tax systems is nothing new
Salla Saastamoinen, Director for Equality at the European Commission's DG Justice and Consumers explained that the issue of "neutrality between the sexes" in tax systems is nothing new. In 1985, the Commission published a report to persuade States to switch to an individual taxation system. It called for a fully independent taxation system with a view to achieving equal treatment of men and women, or at least, in order to allow a separate assessment as an option. A number of States were convinced by the report, including the Netherlands and the United Kingdom, and reformed their tax system in order to eliminate "explicit gender discrimination".
"Today, the main change is the increase in the number of women who are the sole or primary earners in the couple", she noted. However, she pointed out that the figures still show inequality (in the majority of households, women are the secondary earners), with strong variations between Member States: in some States, women are the sole or primary earners in over 25 % of couples, whereas, in other countries, this figure stands at 10 %.
In her view, what has changed is the fact that, in couples, the work of the partner with the lower income is penalised by the interaction between tax systems and social benefits, in comparison to a situation in which the same individual is single, or the primary earner in the couple.
"The European Commission supports the pursuit of economic independence by women and men via participation in the labour market and has set an employment target of 75 % by 2020, which requires an increase in the employment of women, given that the employment rate of men is already at 75 %", noted the speaker. In her view, an increase in the employment rate among women would also help to reduce the risk of poverty, especially among children.
Salla Saastamoinen went on to explain that the impact of the transition towards individual taxation may be offset by allowances and advantages which, in an attempt to favour income distribution within households, could give rise to a trend which would favour a traditional division of work within the couple.
Finally, she spoke about the risk of poverty among women over the age of 65 years. In her view, this is even higher due to inequalities in the careers of women and men and their interaction with retirement pension schemes.
Welfare State models from the perspective of individual taxation
Nicole Kerschen, an honorary researcher at the CNRS, explained that taxation systems go hand-in-hand with the various types of Welfare State.
The Welfare State based on "the worker and their family" (applied in France), in accordance with "Bismarck's social insurance model", constitutes a "gendered division of male/female roles" in which roles are "specialised" and "complementary", she explained. The man is the "producer and breadwinner who provides for the family", while the women's role is to "bear and raise children" and is confined to "domestic tasks". This model favours women's economic dependence and their "relegation to the private sphere".
In the speaker's view, this model has shown a great capacity for adaptation, in particular, by enabling the integration of the unemployed, trainees, unmarried couples and gay people into the social system. However, she noted that the system is open to criticism, as it is based on gender inequality and involves a certain degree of "social injustice as regards pensions". Furthermore, "it facilitates undeclared employment, through derived rights", she explained.
In the Welfare State model which is focused on the individual as a citizen (applied in Denmark), based on the work of Beveridge and T.H. Marshall, social rights are independent of any "institution", including marriage. Universal social rights are granted to individuals in their capacity as citizens and take the form of universal services. The State promises economic independence for all through "policies providing access for all to the labour market and flexicurity". It commits to measures which reconcile professional, private and family life, and supports children's rights and equal opportunities.
Nicole Kerschen expressed the view that this model favours individual freedom, and, therefore, gender equality. However, in return for such social rights, the individual must participate in producing wealth and paying taxes. "European citizenship in terms of rights and obligations, as set out in Article 20 of the TFEU, draws on this model", she noted.
As a conclusion, Nicole Kerschen explained that "the family-based model is now out of step with developments in society". For her, "it seems quite obvious that the model of society must be changed in favour of a social citizenship model".
Taxation of women's income and employment in Europe - For Danièle Meulders, the introduction of individual taxation and social expenditure is a necessity
Danièle Meulders, Professor of Economics at the Université Libre de Bruxelles, explained that taxation systems reflect "how society perceives gender equality". In family taxation systems, she believes that this approach is unequal. Her argument is based on the fact that, although discrimination is no longer explicit, it is implicit, something she refers to as "implicit gender bias".
The speaker noted two types of implicit gender bias.
- Women are often secondary earners ("Secondary earner bias"). In household-based taxation systems, their income is taxed at the marginal rate which applies to the primary earner. Thus, the majority of women are adversely affected by non-individual taxation systems.
- Tax advantages granted to a non-working spouse are often lost when they join the labour market ("Unpaid work bias")
"These two biases are barriers to employment which mainly affect women, who are in the majority among secondary earners", she stressed.
In countries where the individual is taxed, gender bias may be found at other stages when calculating tax, she explained, citing the example of tax advantages granted to a taxpayer when their spouse is not working, or only earning a low income. In her view, these tax advantages mainly benefit men and often constitute substantial tax expenses. "These barriers to employment mainly affect women living with their partners, as any increase in their income from work might result in the loss of a tax advantage", she stated.
Danièle Meulders then presented a table comparing EU Member States which presents tax units and advantages for single-income couples. In 19 Member States, tax is calculated on an individual basis, while five countries calculate it by household (Germany, Luxembourg, Ireland, France and Portugal) and four countries offer taxpayers the choice (Estonia, Poland, Spain, Malta). "Therefore, individual taxation is the dominant model in the EU", the speaker noted.
However, she also noted that individual taxation is not perfect in the 19 countries where taxation is calculated individually. Ten countries grant tax advantages to couples with one source of income, six countries have a system of transferability of tax credits between partners, which is likely to reduce taxes for the partner with the highest income when the other partner has no income or only a low income. Finally, in three countries, couples file a joint tax return. She warned that tax regimes in which couples are taxed individually can therefore be "impure".
Danièle Meulders then spoke about women's employment in Europe. For her, "vertical and horizontal segregation is still in place": women are still concentrated in limited sectors and professions and continue to be in the minority in leadership positions. She also believes that new forms of discrimination have emerged. "The development of part-time work, career breaks, flexible working hours, temporary work have slowed down progress towards equality in work leading to the emergence of new ghettos towards which women's work has been channelled", she noted.
In 2013, in the EU, 30.5 % of women were working part-time, compared to 7.5 % of men. The proportion of women in part-time work varies from 2.5 % in Bulgaria to 73.1 % in the Netherlands. The speaker explained that part-time work is one of the factors which increases the risk of poverty in different European countries. "The over-representation of women in this type of work is one of the factors that explains the pay gap between women and men", she noted.
In her view, the level of education and parenthood have a strong influence on levels of economic activity and employment among women. Standard of education has a decisive effect on women's employment in all EU countries: on average, in 2014, the rate of employment among women with primary level education was 42.6 %, with 64.2 % for women with secondary education and 78.9 % for those with post-secondary education. Motherhood has negative effects on the women's careers, as it often requires them to take career breaks or reduce their working hours, she further noted.
According to the data presented by the speaker, changes in taxation would particularly impact women living with their partner/spouse and, more generally, groups with low rates of employment: youngest and oldest groups, those with low levels of education, mothers and part-time workers.
In her view, the disincentive of income tax on women's work is a result of the non-individualisation of tax, advantages accorded to single income couples, the tax burden and progressive tax bands.
In this regard, Danièle Meulders believes that the Council's recommendations on the national reform and stability programmes for 2015 and taxation should address the undesired effects of taxation on women's employment. "The introduction of individual taxation and social expenditure is a must if we are to bring women back into the workplace from total or partial inactivity and free them from their status as secondary earners, which is at the root of gender inequality", she concluded.
Female employment and the taxation system in Austria and Sweden
Edeltraud Lachmayer, Head of the Department of income and corporate income tax at the Austrian Ministry for Finance, then gave a presentation on female employment and the Austrian taxation system.
She began by stating that the individual taxation system fully came into force in Austria in 1975, with an initial phase from 1972. She noted the reasons for the change in paradigm: the arrival of the new social democratic government in 1970 and the high tax burden of married couples, stressing that female employment was not the reason for the change in the system.
Female employment was particularly low at the start of the 1970s, and grew throughout the decade and in the 1980s. However, this was more of a trend throughout Europe than a consequence of the change in the taxation system, she specified.
The lack of childcare facilities at the time in Austria, along with "scepticism" among Austrians about this type of childcare, as well as the lack of popularity of part-time work can explain the differing impact of the individual taxation system on female employment. A change in attitudes and the introduction of more childcare services were needed for the effects of the reform to become more apparent.
Today, over two thirds of women in Austria (66.9 %) are in work, Edeltraud Lachmayer noted, and Austria is in second place, after the Netherlands, in terms of countries with the highest levels of part-time work. However, the speaker noted that, among the seven European countries with the highest rates of female employment, six have the highest rates of part-time work.
Thus, the rate of female employment in Austria is particularly high in comparison to other Member States, but when women have children, they often hold "atypical" jobs, whereas men continue to work full-time and to take on overtime.
By way of conclusion, Edeltraud Lachmayer stated that while individual taxation undoubtedly plays a role in promoting female employment, it is not sufficient in and of itself. The social environment and attitudes also need to change, and childcare facilities must offer reasonable prices.
Åsa Gunnarsson, Professor of Law at the University of Umeå in Sweden, then set out the situation with regard to female employment and the taxation system in Sweden.
The speaker began by reminding the audience that the individual taxation system was introduced in Sweden in 1971 but that this more a result of a shortage of labour and low fertility rates at the time. The authorities looked to find ways in which the taxation system could promote family life and encourage people to have more children.
The political debate was a major factor in the change to the system, she continued, in particular, the women's movement, the urgent need to encourage married women to work and growing concerns among parliamentarians about poor families with young children.
The speaker then returned to the impact of the introduction of individual taxation, noting that it was the most expensive reform of income tax that had ever been introduced, and was financed through an increase in VAT.
This reform, which was "progressive for its time", also enabled many mothers of young children to work, she stated.
In conclusion, Åsa Gunnarsson noted that the reform is important for sustainable gender equality and that it is also important to take account of the situation of poor families. She also noted that this debate is coming to the fore in Germany.