Opening Address to Tax Agents Institute of New Zealand Annual Conference
Copthorne Hotel, Waitangi
Good afternoon, and thank you very much for inviting me to speak to you again.
Looking back over the past year, much has changed since the last time I addressed you, but also a great deal still remains to be done.
As we contemplate the uncertainty ahead for both New Zealand’s and the world’s economies, one thing is certain – the old ways are gone forever and we need to find ways to be more innovative if we are to map out the kind of future that we want for this country.
And the events of the recent past have certainly caused massive upheaval.
When I attended your conference in March last year, Christchurch was only just coming to terms with the most destructive earthquake in living memory the month before.
February 22 changed everything for Canterbury and for New Zealand.
We have just marked the first anniversary of the quake, and Christchurch and the nation are still feeling the on-going effects and will be for some time to come.
The 2008 Global Financial Crisis changed our world forever.
Easy acceptance of massive debt changed almost overnight and now governments, business and individuals alike are much more focused on fiscal prudence.
If we are to ride out future economic shocks, we urgently need to reduce our dependence on overseas debt, build our capital and return the economy to surplus as soon as possible.
A sound tax system is a good platform for the Government to begin consolidating and strengthening the economy and getting on with rebuilding Christchurch.
The GFC and the Canterbury quakes have taught us, amongst other things that we as a people need to be more prepared and more agile.
They have forced us to consider new ways to work more efficiently, and this, essentially, is what I want to talk to you about today.
Later this month I will release fuller details of the tax policy work programme for the next eighteen months.
The programme will be strongly focused on helping us return to surplus and building our economy.
It aims to do this, not by introducing new tax regimes, but through some might say mundane, but sensible measures which align neatly with the Government’s priorities as outlined in the Prime Minister’s start of year speech:
- The responsible management of Government’s finances
- Building a more competitive and productive economy
- Delivering better public services to New Zealanders, within the tight budget the Government is operating under, and
- rebuilding Christchurch.
Obviously to do these things in an environment of strict fiscal restraint and without borrowing further, we need to raise revenue to fund government services and functions.
Now there are all manner of strange and wonderful new taxes that could be introduced to raise revenue if that was our only objective.
We are not doing that.
What we are doing is working with the system we have, which is in pretty good shape after the reforms of Budget 2010, and ensuring that the tax burden is shared equally and that the current rules are working as intended.
The focus is on constantly making the system work better.
It is the sensible thing to do and we need to be sensible if we are to have an enduring, robust economy and help Christchurch.
And speaking of Christchurch, work continues in this area on the tax front, mainly with regard to depreciation.
The tax system has been able to provide tangible and valuable help for the people of Christchurch.
Most recently was the further extending of Inland Revenue’s discretion to remit interest on late payments where people are unable to meet their tax obligations because of the earthquake.
For this support to continue and to provide government services across New Zealand, it is crucial that tax collection continues, but that it does so in an efficient and fair manner.
Along with raising revenue, the work programme will also include work to:
- Provide an environment that supports economic efficiency and growth;
- Minimise tax administration costs and compliance costs for taxpayers;
- Provide on-going maintenance work on the tax system to ensure its effectiveness; and
- Provide capacity (and flexibility) to deal with emerging and critical issues.
Public service efficiency
Another thing we learned from the Canterbury earthquakes is that government agencies can be very flexible and find new ways to work if need be.
So for example, we found courts being convened on marae and different agencies, such as Work and Income and Inland Revenue working together to provide frontline services to those in need.
That spirit of the public service working more cohesively together is to be encouraged and the Taxation (Tax Administration and Remedial Matters) Act passed last year provides for greater sharing of information held by Inland Revenue with other government agencies, subject to a range of restrictions.
It makes little sense that a person dealing with a number of different agencies has to provide the same basic information to each agency.
Sharing information is therefore a rational and efficient way for the public to interact with the public service.
There is a cost to collecting taxes, a cost which of course is borne by the taxpayer, so anything which reduces Inland Revenue’s costs is good for the taxpayer.
Inland Revenue’s business transformation
And currently, Inland Revenue’s technology systems are ageing and our ability to implement complex or major policy change is declining over time .
In the last few years it has become increasingly apparent that a system designed well before the advent of the internet and e-services has become a significant challenge to the efficiency of our tax administration.
More so because of the very constrained fiscal situation.
Inland Revenue’s FIRST system, originally intended for the efficient administration of tax has over recent years, has also been used to administer a great many non-tax programmes such as student loans, Child Support and KiwiSaver.
This has resulted in greater systems complexity, loss of agility and efficiency, and increased administration costs.
The combination of new technology and rapid changes in Inland Revenue's role means we cannot rely on more of the same to work for us in the future, hence the need for a transformation of our systems to continue to ensure the efficient operation of our tax system into the future.
The economic and fiscal position calls for a tax system that is as efficient as possible in raising the revenue the Government needs to meet its funding requirements.
Work in this area is currently being progressed with an expectation of a fuller understanding of its scope by mid-year.
I have also had an on-going interest in seeing a reduction in the amount of paper generated through correspondence with Inland Revenue.
I am therefore heartened by the way that you as tax agents have taken to electronic services and I congratulate you on that.
It is a win-win as far as I can see — good for your clients and your business as well as being good for the public service.
More work is being done in this area and a Bill currently before the House contains proposals you may be aware of which, broadly speaking, smooth the way for electronic storage of business records.
The objectives of the proposals are to support employers currently working in an electronic environment and reduce compliance costs for employers in meeting their filing and record keeping obligations.
Perhaps the greatest strength of the New Zealand tax system is that not only is it a broad based, low rate system, but it is one that is comparatively simple.
Tax, almost by definition, is complex, but our system makes intuitive sense.
Work continues on reducing complexity, improving fairness and maintaining the integrity of the tax system.
Anything which simplifies the tax system is a good thing.
Both the courts and Inland Revenue have made it clear that businesses are free to use company and trust structures – as long as these are not used in an artificial and contrived manner to defeat tax law.
Inland Revenue has again emphasised that it will focus only on the most serious and artificial cases, which is a very pragmatic approach in my view.
Of course the changes in Budget 2010 have gone a long way to preventing the opportunity for such cases to arise by aligning the top personal and trustee tax rates.
Preventing debt and promoting return filing
And as we all know, prevention is better than cure.
Inland Revenue has therefore been active in preventing debt and taking proactive action to help minimise penalties and interest.
Contacting customers over the phone soon after they get into debt has seen Inland Revenue collect an extra $115.3 million, as of 30 June last year, against a target of $100 million.
Last year’s February 7 campaign involving letters, text messages and phone calls promoting the payment deadline, saw 11 per cent more customers paying on time than was achieved the year before.
The actual figures were 83 per cent; up from 72 per cent in 2010.
This is a good example of working smarter.
And the Department is working to improve on that this year.
Inland Revenue recognises and appreciates the hard work you do in supporting your clients to:
- avoid unnecessary penalties and interest by meeting their obligations, or
- get back on track quickly if they have missed a filing or payment deadline.
So to sum up, I would like to say that the way ahead for the global and the New Zealand economy is uncertain but we have learned the lessons of the past and our economy and tax system are now better equipped to deal with economic turmoil.
Government can help to grow the economy, and through our tax system, we can help provide the environment and factors which nurture and sustain a growing economy.
We are confident that our tax system is in good shape after the Budget 2010 reforms and the way that tax shelter opportunities have been minimised.
The tax policy work programme for the next eighteen months is based on sound policy that aims to make our tax system more efficient and fairer.
What we will be looking to do is work smarter – to do more with what we have.
Ministerial Advisor to Hon Peter Dunne
Mobile: 021 917339