Address to New Zealand Payroll Providers Association Conference
Auckland, Tuesday, 23 November 2010
I am very pleased to have been invited to talk to your annual conference once again.
As Minister of Revenue, I spend much of my time in high-level discussion and debate about the economy, and the likely impacts of this or that tax policy.
But a conference is really where the rubber really hits the road.
Businesses need payroll people who can manage the business of paying wages reliably and efficiently.
And efficiency is what I would like to discuss today, as well as the integrity and responsiveness of the tax system in working with businesses and the community.
Since your last conference, the economic climate has changed somewhat.
Conditions are improving after what we now know to have been the worst downturn since the Great Depression.
One of the important contributors to that has been Budget 2010.
The measures the Government took last year were the appropriate response in the immediate aftermath of the global crisis, and the prudence of those measures becomes more obvious each day as the debt crises now facing many of the northern hemisphere economies hit home.
But the global crisis also made it clear that many of our old ways of doing things would have to change to position us well for the future.
That is why Budget 2010 was probably the most important Budget seen in over twenty years, because it had to introduce new policies focusing on promoting growth, integrity and fairness, and I believe the Government delivered on that.
The 2010 Budget was designed with certain principles in mind.
These included promoting a fair and efficient tax system; and better, smarter public services as key steps towards improving economic performance.
The most critical aspects of the Budget were the reduction in personal tax rates, the rise in GST and the measures to limit depreciation on non-residential buildings.
These changes are already paying off for our economy.
They will tilt it towards savings and away from the unsustainable borrowing, consumption and over-investment in housing of the past decade.
And that in turn will improve incentives to work, and to boost production and productivity.
But those objectives are not achieved without a great deal of hard work, and I would like to pay tribute to you payroll professionals for handling the change to the personal tax rates smoothly and without incident.
Ensuring that every worker in the country receives their tax cut correctly, efficiently and on time is hugely important to the government, and your role in achieving has been vital.
So thank you.
In inviting me here today, the NZPPA chief executive, David Jenkins expressed an interest in hearing my views on KiwiSaver and its role in national savings.
Let me say straight off that in my view, and the views of many financial commentators, KiwiSaver is a success story for New Zealand as it goes from strength to strength.
Many of you will remember when it was launched and you began making deductions from wages.
At the time, KiwiSaver was forecast to reach 276,000 at the end of its first year.
In fact, interest was so strong that there were a net 716,000 enrolments.
Current membership has now passed the 1.5 million mark.
Good though this is, we cannot be too complacent.
The Government remains concerned that New Zealand still places too high a reliance on foreign capital to fund investment and consumption.
While we strongly support foreign investment as necessary and desirable for the development and expansion of the New Zealand economy, and have no desire to shut the doors the way some of our political opponents would, we do acknowledge that being reliant on overseas borrowing, means the economy could be in for a rollercoaster ride as it responds to overseas financial crises.
So to avoid that, it is absolutely imperative we focus on greater productivity and accumulation of capital so that New Zealanders, including retiring New Zealanders, can enjoy a secure and prosperous future.
Before KiwiSaver arrived on the scene, our savings record as a nation was poor.
And though KiwiSaver is growing at a phenomenal rate, the value of KiwiSaver funds is estimated to be about 9% of the value of managed funds investments according to Reserve Bank figures.
KiwiSaver therefore represents a growing but still relatively small percentage of the value of New Zealand's total managed funds under management.
The Government is of the view that more can be done and that for the stability of our economy and long term benefits, steps have to be taken now to improve our situation.
Working Groups have proven to be a highly effective tool that this government uses for the things that really matter by providing expert insight and advice.
We had the Tax Working Group whose advice was invaluable on the design of Budget 2010 and now recently launched we have the Savings Working Group.
The Savings Working Group is looking at:
- The role of government savings as part of New Zealand's overall savings picture, including long-term savings/debt targets and the interaction of government and private savings.
- The impact of the tax system on the level and composition of national savings and investment decisions.
- The role of KiwiSaver in improving national savings.
The examination of the tax system's impact on savings will be far-ranging and will scrutinise some fundamental aspects of the system.
Already the Savings Working Group chairman, Kerry McDonald has commented that compulsory savings may not be the answer to fixing New Zealand's savings record.
He points out that although Australia has had compulsory saving over the past eighteen years, opinions are still divided over whether it has actually improved the national savings situation.
I look forward with considerable interest to receiving the Group's recommendations early next year.
KiwiSaver is a major government initiative and we continue to refine and improve it.
In September this year, New Zealand enacted legislation bringing in new rules allowing New Zealanders and Australians to consolidate their financial affairs in the country in which they live.
Currently, Kiwis who work in Australia must contribute to an Australian complying superannuation fund.
However, those savings are locked into the Australian scheme until the saver reaches retirement age.
Trans-Tasman portability will allow retirement savings from Australian complying superannuation funds to be transferred into New Zealand KiwiSaver funds - and vice versa.
Participation in the super portability scheme will be voluntary.
While New Zealand has already enacted the necessary legislation, Australia has yet to do so, but we expect this to be in 2011.
Decisions on the administration of KiwiSaver affect you directly as did the introduction of Payroll Giving.
With such changes, you are required to make changes to your processes and your documentation and of course, so does Inland Revenue.
Last time I was invited to your conference, I shared with you some thoughts about how Inland Revenue conducts its business and how it could improve those processes.
Those of you who were here last time may remember that I spoke about the need to modernise Inland Revenue's systems, including the critically important PAYE system.
This is especially important at a time when the government is pushing to ensure that we get increasing value for money from the public service as a whole, at a time when every tax dollar counts.
As I have said many times now, it is staggering that for a population of a little over four million people, Inland Revenue sends out over half a million letters a week, and over 25 million letters a year.
Inland Revenue knows that it has to cut that mail dramatically.
I do not for a minute imagine that anyone here enjoys doing their tax returns, filing monthly schedules or any of the other requirements placed on you by the tax system.
And I appreciate that dealing with the paperwork for tax obligations may not be the highlight of your day.
So here is some good news.
Earlier this year, the Student Loan Scheme Bill passed its first reading in the House and is currently with the Select Committee.
This bill is of significance because it marks the first steps towards an environment where greater reliance is placed on online management of one's affairs and a reduction in the amount of paperwork.
This is the vision for all interaction with Inland Revenue as it moves increasingly away from paper.
I expect this legislation to be passed by Parliament next year, and the new arrangements for student loans, which will be more akin to electronic banking to be in place from April 2012.
Inland Revenue aims in the development and delivery of its services to be customer-focused, and that means that no undue compliance costs are placed on the taxpayer and that the process is as efficient as possible.
The paper-based system has worked well for most of the last 100 years, however I doubt that by my definition it can claim to be customer-focused any longer.
In an age where so many transactions; from buying airfares to groceries and conducting banking are all done online, it is time to find a better way.
It is also wasteful to retain the status quo.
Not just a waste of all the paper, but of all the time spent by Inland Revenue staff processing and transcribing information.
Time paid for by taxpayer dollars.
There is also your time too.
Unlike individuals, businesses already keep their financial information in a computer system.
So the question has been asked, "if businesses already hold all the information needed for their routine tax matters such as PAYE and GST in their computer files, would it not be cheaper, easier and less time consuming to simply connect direct to Inland Revenue's computer?
Businesses would also be able to access tax information such as account balances through their accounting software.
It is a novel thought and it raises all sorts of interesting possibilities as well as issues.
What about privacy and secrecy?
How do we keep taxpayers costs down?
What kind of software system would be able to do that?
Who would design such a thing?
Is this desirable for New Zealand businesses?
How can we implement it in a way which works best for businesses?
Software Developers' Working Group
In October I attended the first meeting of the Software Developers' Working Group.
This is a group of people from the software development industry who have expressed interest in tackling those and other questions as they look at different options and also consider the design of software that would help your business computing system connect directly to Inland Revenue's for routine tax compliance matters.
This includes the day-to-day matters such as starting and stopping an employee and processing their pay.
Inland Revenue is already working closely with the Working Group on detailed process design in areas such as these.
Future tax administration
Electronic communication is not the sole extent of the changes being explored.
I mentioned before that the Budget was designed with a set of principles in mind.
One of those was to deliver a better and smarter public service.
The service you get from the public service must be efficient and cost effective.
That challenge will require Inland Revenue to look afresh and its role and its interaction with its customers, and we are up to the task.
For instance, people currently use accountants for tax obligations and tax refund agents to get tax refunds, so why do we cling to the notion that Inland Revenue is solely responsible for providing tax services?
Why cannot others provide tax services too?
Under such a model, the Inland Revenue of the future would continue to be responsible for the integrity of the tax system and assume a role akin to that of a tax services wholesaler while others, playing to their own strengths would be retailers.
The scope for efficiency under such a model could be extensive.
You will be hearing much more about these types of ideas as work progresses in this area.
However, whatever the future of the tax administration, some aspects of the system will remain constant.
Integrity will remain at the heart of the tax system and the tax administration will need to ensure it works with taxpayers, employers and the community to maintain the integrity of the system to ensure fairness.
Part of that will be working to ensure understanding of tax obligations to promote compliance.
For people entering into business for the first time, the detail of what is required to meet tax obligations can seem a little daunting.
It is part of Inland Revenue's role to ensure that everyone understands their tax obligations sufficiently to be able to fulfil them.
This includes the full range of employer responsibilities including PAYE, ACC, KiwiSaver and Student Loans.
In my role as Minister of Revenue, I come into contact with Inland Revenue people who work with employers to help them understand and comply with their tax obligations.
For new and existing employers the department runs regular seminars and workshops covering employer obligations.
This strikes me as an excellent initiative and I recommend that new and even existing employers look into these.
Anything that could save you getting into difficulties later on has got to be worth it.
Where employers appear to be having difficulties meeting their obligations, the department will make efforts to make contact as early as possible enabling them get back on track quickly.
The implications for employees where an employer has not met their tax obligations can be significant, so it is crucial to correct that course swiftly.
This is also a reason why Inland Revenue has a strong focus on enabling customers get it right.
The tax system continues to evolve and adapt to meet the needs of society.
Over the years Student Loans, KiwiSaver and Payroll Giving have been added to the system.
All these have added to your workload.
Technology has moved on but the tax system has not.
Now changes are now proposed to the tax administration and could mean greater reliance on the internet and even a change to the way the tax system is administered.
These changes are positive and will directly affect you, making things easier to do.
What will not change is that Inland Revenue will continue to protect the integrity of the tax system to ensure fairness.
I thank you for your work and I thank you for allowing me the opportunity to speak to you.
I hope your conference is enjoyable and productive.