Key John: Questions for Oral Answer — Questions to Ministers 
Text is incorporated into the Bound Volume 
Key John: Questions for Oral Answer — Questions to Ministers 
[Sitting date: 16 June 2004. Volume:618;Page:13631. Text is incorporated into the Bound Volume.] 
5.  
JOHN KEY (National—Helensville) 
 to the  
Minister of Finance 
: Does he agree with the Prime Minister’s statement to the House yesterday “We do not have any evidence to suggest that people will be dissuaded from working if they are in those upper-middle incomes that hit the higher effective marginal tax rate.” and does he believe the impact of such high effective marginal tax rates on middle-income working families is fair and reasonable? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 Of course and yes. 
John Key 
: Has the Minister seen research undertaken in the United States by the National Bureau of Economic Research which studied this issue from 1984 to 1996 and found the impact on labour supply was to dramatically reduce the participation in the workforce of the lower-earning partner in families where both partners worked; if so was this the intended design of the policy and what impact does he think this will have on employers finding part-time employees? 
Hon Dr MICHAEL CULLEN 
: No and no. 
Clayton Cosgrove 
: Do higher marginal tax rates exist under the current system and are they endemic to any system that provides targeted support? 
Hon Dr MICHAEL CULLEN 
: Yes and yes. The existing maximum effective marginal tax rates are exactly the same as we inherited from the National Government and are not altered by the package. 
Rodney Hide 
: Does the Minister think it fair that a hard-working family will keep less than 10c of an extra dollar they earn; if so why does he think that is fair? 
Hon Dr MICHAEL CULLEN 
: I think it is fair that the system tries to recognise the cost of raising a family and does not confuse differences in income with differences in effort. 
Judy Turner 
: Does he agree that a potential effect of targeting assistance towards middle-income families is not to dissuade people from working altogether as this decision occurs at much lower income levels but to give parents more choice about whether they want to work overtime or spend time with their children and is he aware of any party that would oppose that? 
Mr SPEAKER 
: The first part of the question is fine. The second part is not the Minister’s responsibility. 
Hon Dr MICHAEL CULLEN 
: Yes. I have received many statements over my time in politics complaining that many women in particular are forced out into paid employment rather than staying home to bring up their children. The package makes that choice easier and not one couched around economic necessity. 
John Key 
: Does the Minister think it is fair that a family with three children earning $38000 receives pretty much the same after-tax income as their neighbours earning $70000; if so does he still support policies that would see the family earning $38000 eligible for a community services card while their neighbours are not and does he support policies that would see children from a family earning $38000 eligible for sizable tertiary student allowances while their neighbours earning $70000 are not even though the after-tax income of both families is virtually identical? 
Mr SPEAKER 
: There are three questions. The Minister may have comment on two of them. 
Hon Dr MICHAEL CULLEN 
: The incomes are not identical. The Government’s policy is to phase out the community services card which we inherited from National. The primary health organisations that National has promised to abolish are a key part of that. 
Gordon Copeland 
: Is the Minister aware that income splitting for single-income two-parent families would effectively solve the perceived disincentive effect that is causing John Key some concern? 
Hon Dr MICHAEL CULLEN 
: No I am not sure that that would solve the problem because there would still be a marginal tax rate effect on the combined income. It would be extraordinarily difficult to have a targeted system of support for families where the targeting was also split. 
Hon Richard Prebble 
: Why does the Government say that it needs evidence to realise that say a schoolteacher with two children would face a huge disincentive not to take a promotion to head of department when under the Minister’s Budget that schoolteacher would lose 88c in every extra dollar if he or she has two children and why does the Minister expect any schoolteacher in that situation to take on extra responsibilities when all this Government will give is 12c in every extra dollar earned? 
Hon Dr MICHAEL CULLEN 
: Income is not the only thing that makes people seek promotion. I note the member’s new deputy leader has taken a salary cut in order to become deputy leader. 
John Key 
: Does the Minister acknowledge that in the pre-Budget lock-up he indicated to analysts his concerns that there may be problems in the design of the package for middle-income New Zealanders; and if so that they might be revisited in the middle of next year; if so why did he promote a Budget that has a fundamental design flaw which he is fully aware of? 
Hon Dr MICHAEL CULLEN 
: I repeat again for the member the so-called design flaw is one that his Government happily lived with for 9 years and did nothing about at all. I further point out to him that if he wants to do something about it the answer is not yet again his favourite nostrum of tax cuts that would benefit the wealthier more; it is to reduce the abatement rates from family support.