Red Alert

Archive for the ‘IRD’ Category

Death and Taxes

Posted by on June 7th, 2013

Nothing, they say, is as certain as death and taxes.

It seems the saying is true.

Yesterday the Finance and Expenditure Select Committee reported back the Taxation (Livestock Valuation, Assets Expenditure and Remedial Matters) Bill to the House.

The usual impenetrable tome of complex technical detail that only corporate lobbyists, tax accountants and hard-working Labour MPs bother to read.

This one was remarkable for what was NOT in it – the odious car park tax had been stripped out under pressure from us, unions and business groups.

Death and taxes may be certain, but there is no point having an annoying tax that costs more to administer and comply with than it actually raises.

The second certainty is that the IRD Call Centre is fast becoming a joke.  

A friend just told me they had been on hold to it for an hour and twenty minutes this morning.  I have had several experiences of close to an hour on hold.  It’s enough to drive you spare!

It is fundamentally wrong that our tax system imposes stiff penalties for late payment and tax payers bear the full risks and cost of any errors when they are effectively denied access to their own tax information and advice because IRD cannot run a decent call centre.

If funding is the issue, it’s a false economy.   The lost productivity must be staggering.

If its management incompetence, it needs a big tune up.

The third certainty this week is that the Minister of Revenue is under huge pressure. 

Indeed, he may not be long in the portfolio.


Filed under: Budget 2013, IRD, Tax

Dunne struggling to keep up?

Posted by on December 5th, 2012

In February this year, the Prime Minister said tax policy was being held back because the computer systems “can’t actually support radical changes from Government.”   The Prime Minister’s comments over nine months ago indicated the urgent need to outline a credible plan and timeline for the necessary system upgrade. 

Since then, there is no progress to report.  Consultants CapGemini are rumoured to have been paid tens of millions for scoping reports.  Bill English was reported as saying $700 million from asset sales proceeds will be spent ‘rebuilding the country’s tax system’ but has dodged direct questions on the topic since.  Dunne says decisions haven’t been taken yet.

Voluntary compliance for income tax payments is declining. At last count 1 million tax returns hadn’t been processed and $7 Billion in tax was outstanding. Unbelievably, Dunne says 32 separate privacy breaches in a year isn’t evidence of a systematic failure and he is refusing to answer specific questions on the matter.  Call centre staff turnover is high. Morale is low. 

The computer problem desperately needs addressing as I explained in a recent article in the Otago Daily Times.  And it requires a transparent process.  Nothing to report after nine months begs some questions about competence.

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IRD computer crisis

Posted by on October 2nd, 2012

Crazy to think the effective collection of tens of billions of our tax dollars every year is dependent on museum-grade technology.

The Inland Revenue Department has been pleading for a new computer system for years. Its current one (known as FIRST) was built in 1992 when the Internet was still in nappies.  Google didn’t exist and Facebook was more than a decade away.

In February this year, the Prime Minister said tax policy was being held back because the computer systems “can’t actually support radical changes from Government.”  He also said “You don’t want to be in a position where Parliament is held hostage to a lack of technology.”

But New Zealand is being held hostage to this technology. Well placed sources tell me that the Government couldn’t currently implement a capital gains tax – even if it woke up to the need for pro-growth tax reform to support our exporters – and actually wanted to follow the advice of tax experts including Treasury officials, the World Bank, the OECD, and others.

This Government has tinkered with tax-thresholds and it gave tax cuts to the most wealthy in 2010, but it hasn’t made the big structural changes necessary to get our economy on track.  Perhaps it is afraid of getting burnt again after an attempt at building a new system to cope with Student Loan changes was abandoned with $21 million spent last year.  Certainly development plans have gone quiet since.

Despite Key’s statements in February, no credible timeline for the necessary comprehensive replacement system has been ventured by the Government.

Meanwhile the legacy FIRST system creaks on. Unlike in modern IT, changes made in one part of the FIRST system do not flow through to others. Consequently even mild changes are time-consuming to implement.  A limited budget means resources supporting the antiquated system are not available in the same measure to support other core activities. Resources are stretched – and so more and more mistakes are being made.

Yesterday, Peter Dunne responded to my press release concerning the urgent need for upgrade, by defending IRD’s most recent performance lapses as the result of human error and poor forecasting (leaving the personal slights aside). Well and good, but with all due respect – those are precisely the kinds of errors that are made when an organisation is stretched.  And to those could be added around $7 Billion in outstanding debt and a surprisingly high number of unprocessed tax returns.

What is urgently needed is commitment from the Government to a system upgrade, accompanied by project details including a credible timeline for implementation.  Any response prominently featuring the word ‘relaxed’ and speaking of 5-10 years simply won’t cut the mustard.

Updating our IT shouldn’t be that hard. We can learn from others. After all, we’re not the only country in the Western World with a tax system.

Peter Dunne – Changes to Child Support

Posted by on August 21st, 2011

Peter Dunne has finally announced proposed changes to the child support regime in order to make it fairer. He admits that “on something as contentious and as emotionally charged as child support… it is not about trying to please people. It is about creating a system that people feel is fundamentally fair, and crucially, that they feel is for the benefit of their children. If we get those two factors through to people, then we have succeeded, and I believe we are doing that here.”

Aside from the obvious contradiction there (‘not trying to please people… but about creating a system that people feel is fundamentally fair’: in my experience, people are pleased with a fair system, and not with one that isn’t), I don’t think anyone would disagree with the sentiment. As Revenue spokesman, I get many e-mails from people who believe they are being ‘ripped off’ by a discriminatory child support regime.

Three points I would make however:
1. Two and a half years ago Dunne said he would complete a review of the system in 6 months. What took him so long?
2. Dunne’s IRD is undertaking a round of redundancies (16 front line staff in Napier alone) and yet they are about to restructure the child support system… Does that mean ‘more with less’? Give me a break.!
3. Most importantly, Dunne has said that the changes to the system will be in legislation introduced to Parliament in the next few months. There are only four sitting weeks left this term. This is incredibly important legislation because over 200,000 NZ children rely on child support payments. I hope like hell this isn’t something that Dunne and the Nats are planning to introduce under urgency.

I am not saying there doesn’t need to be changes to the child support system, because there quite obviously does (of the approximately $2b in child support debt, under $200m is actually principle). But any legislation reforming the child support system needs to go through the proper parliamentary process; e.g. public select committee where all NZers can have their say.

The real shame of all this: if Dunne had done what he said he would do, then we would have had this whole system reformed months ago. Wonder why he hasn’t…

S&P: National on negative watch (part I)

Posted by on November 23rd, 2010

National’s counter-spin on yesterday’s placement by Standard and Poor’s of New Zealand’s sovereign credit rating on negative watch shows increasing desperation, the latest of a torrent of bad economic news.  I comment in two parts: the announcement and the counter-spin.

First the announcement’s overview:

  • “We perceive New Zealand’s projected widening external imbalances and the country’s weakened fiscal flexibility as increasing risk to the sovereign.
  • New Zealand’s vulnerability to external shocks, stemming from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

The S&P Report’s rationale makes the drivers even clearer:

  • widening external imbalances
  • weakened fiscal position
  • under-diversified economy
  • high external liabilities
  • a return to high current account deficits averaging 5.9% of GDP over the next three years.
  • and crucially, that “net external liabilities … predominantly reflect dependance by households on foreign capital to fund consumption and property investments”

In other words: New Zealand does not save enough, it has too much private debt, and that debt was used to fund the wrong things (property speculation not real business investment).  New Zealand’s exports are under-diversified and New Zealand will continue structural bleeding on our external accounts after the immediate recession.

The logical repsonse to these problems should be;

  • strong action to close the savings deficit (if possible by building good household saving behaviour)
  • diversify and increase exports (presumably moving beyond a narrow range of bulk commodities)
  • managing the fiscal position to encourage sustainable growth, employment and healthy tax revenues without blowing the fiscal deficit.
  • ensuring monetary policy supports the direction of reform rather than acting against it.

It obviously should NOT include:

  • borrowing more for tax cuts to upper income earners that neither create powerful stimulus nor correct the underlying imbalances
  • reinforcing exisitng bulk commodity exports while reducing investment in innovation and R&D to divesify and add value to the export base
  • cutting back Kiwisaver; cancelling prefunding for the NZ Super Fund; and taking two years to set up a Savings Working Group (and even then proscribing a range of strong policy options)
  • pretending monetary settings are ideal when exporters face extreme currency volatility

Bill English and John Key declared S&P lifting their previous negative outlook as a” verdict’ on Budget 2009.

They should be straight-up enough to accept that S&P has now reversed its verdict.

After 18 months of National Government policies National can have only itself to blame.

In part II of this post we’ll check whther their rhetoric matches this reality.

Child support debt – the national shame

Posted by on August 5th, 2010

A recent report tabled in the House by the Office of the Auditor General on the IRD’s management of the child support system highlights some serious issues in this rather sensitive area.

Over $1.5b is owed in child support payments.!  This is forecast to rise to $7b by 2018 unless something drastic is done soon to address the problem.  Of the current $1.5b outstanding, only around $195m is actually owed to parents – the rest is owed to the IRD in penalties and interest.!  The OAG concluded that the severity of the penalty regime can actually act as a disincentive to people meeting their parental responsibilities, as opposed to the incentive it is supposed to be. 

I think most of us agree that any parent who doesn’t take responsibility for their children by providing for the necessities of life needs to take a good hard look in the mirror.  ‘Front up and take responsibility’ is the message society needs to send to those who abandon their dependants.  About 68% of parents do make the correct payments on time, but that leaves 32% of parents who don’t.!

However, we need to have a system that is fair and an agency managing the system that understands its own responsibilities to the country’s citizens as well.  The data in the OAG’s report shows that the IRD only calls around 40% of those who enter into the child support scheme.  Remember, people enter this scheme often at a time of great turmoil and emotion.  IRD should be making an effort to contact EVERYONE and work with people to outline their financial responsibilities and how to best manage the situation.  A staggering 96% of all those within the child support system have had to pay a penalty at some point in time.  This is astounding.  The penalties are harsh – as mentioned, the OAG acknowledged this – if you are a minute late in paying, your debt jumps by 10%, then a further 2% per month.  A person’s debt doubles around every 3 years. 

The thing I find a little disturbing though, is that the penalty payments collected by the IRD don’t go to the parents looking after children, but straight into the IRD coffers.  How about this: if a person with a child support debt dies, the IRD tries to claim that debt from the estate – the estate doesn’t go to the children, who could well do with the funds – but to the IRD.!  How perverse.

At a speech in October last year, Minister Dunne said that he would have a paper to cabinet in ‘a couple of weeks’.  Almost a year later, and no sight of it yet.  So, like the management of most issues, Key’s cabinet collectively fiddles while Rome burns.  Its becoming a common theme.  Does this govt actually care?  Dunne has known about this problem for around 3 years (remember the man was Revenue Minister under Labour), and still hasn’t done a thing.!  Where is the plan to remedy this situation?  It simply doesn’t exist.  And who suffers?  Kiwis who can least afford it.  That’s hardly fair Mr Dunne and Mr Key.