1st Oct 2023


EU countries' tax-and-benefit systems penalise women

  • 93-percent of women looked after their under-age children on a daily basis - compared to 69-percent of men (Photo: Unsplash)
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How tax-and-benefit systems are structured has a major impact on women's participation in the labour market.

The most immediate reasons are two-fold: there is insufficient recognition of childcare costs, and joint-taxation can negatively affect the second earner, who is in78 percent of cases female across the EU.

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The first is easily understandable, since the burden of childcare is more often borne by women: 93 percent of women aged 25-49 looked after their under-age children on a daily basis, compared to 69 percent of men.

That is unpaid time investment, and one of the factors that led 30 percent of employed women in 2019 to only have a part-time job, compared with just eight percent of men.

In addition, the more children, the greater the gap between the employment rate of men and women. For women, having three children instead of one means a reduction in the employment rate of 14 percent, for men, just two percent.

But the second reason requires a little more explanation. Filing a joint tax-return has its benefits, but also its drawbacks, especially for women.

Why? Because their income, lower than their partner's in almost eight-out-of-ten households, would be subject to a higher marginal rate, in line with their partner's higher income. If they worked more or for better pay, second earners would lose about a third of that new income in taxes.

The 'inactivity trap'

When you add to this that they may also lose benefits by having higher wages or working longer hours and thus increase their tax rate, the option becomes less attractive and may even lead to the so-called 'inactivity trap' (when certain benefits make it more attractive to remain unemployed than in work).

In Lithuania, Denmark, Slovenia, Belgium, Germany, Luxembourg and Romania, the design of their national tax systems leads to the inactivity trap among second payers above 40 percent.

Parodixically, key EU policies are boosting inclusion or increased participation of women in the labour market, yet "gender issues in taxation are rarely considered", according to a 2017 study by the European Parliament's own policy department.

"National tax provisions creating employment barriers for secondary earners may violate the directive on equal treatment of men and women in matters of employment and occupation", the study found.

Although the EU's competences are limited in the area of national taxation, the parliament (which here only has a consultative role), issued a non-legislative resolution in 2019 calling on the commission to act within those limits and issue guidelines and recommendations for member states to eliminate tax-related gender biases.

The aim? To set out a strategy defining targets, indicators and institutional mechanisms to ensure gender equity in the tax and benefit systems of all member states.

The study also included a recommendation to strengthen policies that promote an equal intra-household distribution of paid and unpaid work.

According to an OECD report, most of this bias is implicit, not explicit, and can be reduced by introducing tax credits for working mothers, increasing the progressivity of the tax system, reducing disincentives for lower-wage earners to work, or expanding the tax base to include capital income.

That is a similar call to the line proposed last month by the EU Commission's high level group to future-proof the EU welfare state.

The parliament's study adds: "(Payable) tax credits for work-related childcare costs reduce the costs of taking up paid employment".

Underlying all these proposals is the area where most work is needed, labour taxation (analysing tax credits, allowances, social security contributions, inequalities, etc).

In line with the so-called EU pillars, equality should be enough of a driver for change, but there are also economic implications.

According to a European Institute for Gender Equality (EIGE) study, greater gender equality would create another 10.5 million jobs by 2050 within the EU, and would also lead to an 3.5 percent increase in GDP per capita, EUobserver reported.

"If national tax systems continue to feed and stimulate tax traps for secondary earners, substantial gender equality will never be realised", concluded the research 'Gender Equality and Taxation Policies in the EU'.

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