Key John: Questions for Oral Answer — Questions to Ministers 
Key John: Questions for Oral Answer — Questions to Ministers 
[Volume:629;Page:1794] 
3.  
JOHN KEY (National—Helensville) 
 to the  
Minister of Finance 
: Would the introduction of a payroll tax have the effect of reducing employment in some industries; if so what industries might be affected? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 Even I believe that all taxes have economic impacts and these would be considered alongside any proposals that any responsible Government would consider. 
John Key 
: Does the Minister accept that introducing a payroll tax would make labour more expensive for employers—in fact that is the whole point of having a payroll tax—and that employers would respond by reducing the number of people they employ; if not why not? 
Hon Dr MICHAEL CULLEN 
: Clearly a payroll tax all else being equal would increase the cost of labour. If it was accompanied by a reduction in the cost of capital then of course that might lead to expansion of productivity. 
Hon Mark Gosche 
: Would the introduction of a tax exemption for new migrants and returning New Zealanders have a positive effect on employment in some industries? 
Hon Dr MICHAEL CULLEN 
: Yes indeed; it will assist businesses in gaining access to skilled labour in a tight market. The changes that this Government is introducing with effect from 1 April show that we are serious about making practical changes to benefit business rather than simply relying on tired old rhetoric. 
John Key 
: Has the Minister considered the impact of for instance Treasury’s 2004 analysis of payroll taxes—a 20 percent company tax rate and a 5.4 percent payroll tax—on a company such as Air New Zealand because when I looked at its most recent annual report which was I think the 2004 annual report I calculated that that company would have a reduction in its capital which is something he referred to in his first supplementary answer of $12.6 million and an extra payroll tax implication of $44.8 million making a net loss to the company of around $32 million; and what impact does he think that would have on Air New Zealand’s desire to keep all of its 10829 employees? 
Hon Dr MICHAEL CULLEN 
: Any structural change in taxation has impact differentially upon business. Treasury of course—most prominently—believes that the most appropriate change to the structure of taxation is to increase GST and to lower taxes on income. I notice that no party in the House is supporting the Treasury position on taxation. 
Hon Mark Gosche 
: Has the Minister seen any reports on the likely effect of alternative proposed changes to the tax regime on employment in some industries? 
Hon Dr MICHAEL CULLEN 
: Yes; I have seen reports suggesting an extravagant programme of tax cuts costing $11 billion over 3 years. This would necessarily have an impact on employment in industries such as health care and education as it would require severe cuts to public spending. 
John Key 
: In the Minister’s mind is the purpose of a payroll tax to raise revenue or change the relative price of capital and labour? 
Hon Dr MICHAEL CULLEN 
: No decisions have been made about any change in the structure of taxation but I can assure the House that if any proposals are developed they will be put out in the public arena for full consultation. 
John Key 
: Is the Minister aware that the Nobel Prize - winning economist Paul Samuelson said: “Simple-minded people often say that raising wage rates will cause machines or ‘capital’ to be substituted for labor. More sophisticated folk have wondered a little about this argument …”; if so does he place himself among those simple-minded people? 
Hon Dr MICHAEL CULLEN 
: No. I am always happy to take guidance from Mr Paul Samuelson who as one of the world’s leading neo-Keynesians rejects almost every economic argument put forward by the Opposition. 
John Key 
: Why could the Minister not give a straight answer to the question of whether the business tax review is meant to be fiscally neutral; surely before he embarks on such an exercise he needs to know whether he is digging another fiscal hole or simply filling one in? 
Hon Dr MICHAEL CULLEN 
: Because there is not a straight answer.