Inland Revenue - Tax policy Tax Policy

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- proposed changes to the laws that Inland Revenue is responsible for
- updates on the progress of bills through Parliament
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Chapter 2 – Why the need to change?


Inland Revenue administers five social policies

Inland Revenue’s social policies Current spend and recipients[3]

Student loans

Joint responsibility for student loans with the Ministry of Education and the Ministry of Social Development (StudyLink). Collects repayments from student loan borrowers.

  • $1.2 billion student loan repayments collected.
  • 730,000 total borrowers.
  • 105,000 borrowers with an overdue student loan debt.

Working for Families Tax Credits

Administers Working for Families Tax Credits jointly with the Ministry of Social Development. Comprises five tax credits:

  • family tax credit;
  • in-work tax credit;
  • parental tax credit;
  • child tax credit (closed to new customers); and
  • minimum family tax credit.
  • $2.4 billion Working for Families Tax Credits paid.

Kiwisaver

Collects contributions and transfers them to KiwiSaver providers for investment. Pays the member tax credit.

  • $5 billion KiwiSaver funds passed to KiwiSaver scheme providers.
  • 2.6 million people enrolled.

Child support

Collects child support payments from liable parents and distributes these payments to carers and the Crown.

  • $474 million child support payments from 170,000 liable parents.
  • $280 million paid to carers, the balance was retained by the Government to offset against the cost of benefits paid.

Paid parental leave

Makes payments (on behalf of the Ministry of Business, Innovation and Employment) to parents who take leave from their employment to care for a baby.

  • $217 million paid parental leave distributed to parents.
  • 26,300 parents a year.

Working for Families Tax Credits assist families with children with the cost of living and help improve the returns from working. Child support helps ensure that parents are contributing to the cost of caring for their children. Student loans help with the cost of higher education, and for domestic borrowers is repaid according to their income. KiwiSaver helps customers to save for retirement. Further information on these social policies can be found on Inland Revenue’s website.

Paid parental leave is not covered in this discussion document.

Challenges with delivering social policies within a tax administration

An effective social policy system requires both good policy and good administration. Without good administration, the policy will not achieve the outcomes that Government and customers want. The tax administration system has some advantages for delivering income-based social policies, such as strong links to income information and a wide customer base. It also has characteristics that mean it is not fully "fit for purpose". These characteristics include the annual April to March tax-year cycle, the extension of time for filing, and the focus on making the customer get their income details right, backed by strong penalty rules.

The outcome of a tax administration approach to social policy raises questions about the timeliness and accuracy of payments, including whether the approach is responsive to the changing needs of customers. Delays and the complexity of the rules can impact on customers’ decisions to enter work or study, especially when savings are limited and income is tight. Uncertainty over the level and timing of payments, as well as whether they are correct, can affect the decisions customers make. For example, some families will choose to wait and only apply for tax credits at the end of the tax year to avoid the risk of being overpaid during the year and incurring debt.

Inland Revenue was assigned administration of the different social policies over several decades, with some transferred from other agencies and some specifically designed for Inland Revenue. The result is customers are now faced with different rules and processes for their various payments. It is complex and confusing, making it difficult for customers to understand their obligations or claim their correct entitlements. If customers do not know what the rules are, they are less likely to comply, more likely to get it wrong or give up trying.

The modernisation of Inland Revenue’s systems provides an opportunity to take a fresh look at the administrative rules and processes for the social policies Inland Revenue administers. Better administration of the social policy payments will go some way towards making them less complex and easier to understand. The new systems are also intended to have better agility so any changes Governments make to the complexity of the policy settings can be implemented more efficiently.

Four objectives guiding the social policy proposals

Four main objectives were used to guide improvements to the administration of social policy:

  • Focus on the customer to ensure they get correct entitlements – take-up rates should be high and customers should receive all their entitlements available under the law when they are needed. This will help to ensure the policy objectives are achieved. Similarly, everyone should fully meet payment obligations for child support or student loans. Payments should be easy to get right and hard to get wrong. To do this the administration would need to be:
    • easier to understand – customers are more likely to take up entitlements and meet their obligations if they know what the rules are – if the rules are intuitive and fit in with the key events in their lives; and
    • easier to access – the level of customer effort should be low and information should be easy to update (especially changes in circumstances) and reused across different social policy payments.
  • Provide certainty and predictability so customers can budget and make decisions about their future with less risk or stress. They will know what changes will mean for their future social policy payments. Ideally, when customers receive payments they should have confidence to spend the money and not worry that Inland Revenue will ask for any of it back.
  • Provide for timely and accurate payments – payments need to adjust quickly to reflect changes in customers’ lives, such as new relationships or moving into work. A process that responds quickly to deliver the right amount at the right time based on current circumstances is ideal.
  • Provide for an agile system that can easily and quickly change to reflect the Government’s policies and priorities or changes in customer expectations while maintaining coherence and integrity. This will build trust in the payments, the system as a whole and Inland Revenue’s ability to deliver.

The challenge is that these objectives can sometimes conflict. For example, some people will prefer the certainty of constant payments even if the payments do not accurately reflect their current situation. Others will prefer more accurate payments that quickly adjust with changes in circumstances.

Please bear in mind these objectives and consider which objectives are more important to you when commenting on specific proposals. Also consider concerns about equity and fairness between customers, and efficiency and effectiveness for delivering the right outcomes.

In addition to meeting these objectives, it is a core principle of the proposals that people should not be entitled to any less government support than they are currently entitled to receive.

The main focus of this discussion document

The main focus of the proposals in this discussion document is on the family-based Working for Families Tax Credits and child support payments. However, some of the proposals can also be applied to the repayment of student loans for domestic borrowers who earn income other than salary and wages.

Following on from the Green Paper discussion document reflecting the four objectives, this discussion document looks at proposals to:

  • improve the accuracy, certainty and timeliness of payments for Working for Families Tax Credits, child support and student loan repayments (in Chapters 3 and 4);
  • prevent debt being incurred from customers missing payments to Inland Revenue or from being overpaid entitlements (in Chapters 4 and 5);
  • align and update common definitions (in Chapter 6); and
  • work with people who have unusual or exceptional circumstances differently to achieve better outcomes (in Chapter 7).
 

3 The figures in this table have come from Inland Revenue’s 2016 Annual Report.