31 March 2015
Address to Wellington Employers’ Chamber of Commerce on the launch of Inland Revenue’s Business Transformation
Thank you for joining me here today.
My thanks to the Wellington Employers’ Chamber of Commerce for providing this opportunity to talk to you.
As Minister of Revenue, there are certain things I have noticed about tax.
- Some people believe that their tax obligations belong in the “too hard” basket
- Meeting tax obligations can impose costs, and
- People rarely say to me “tell us more about paying tax, Minister”
We need to be reasonable and accept that we can’t wave a magic wand and change these things instantly, but today I want to talk to you about how the Government aims to address and mitigate these issues.
The Government knows that for business to flourish, it has to be easier to do business in New Zealand. That is why we have a determined agenda to support all businesses, large or small.
And we recognise that Government's role is to provide stability and certainty and predictability.
These are the things that encourage businesses to invest in and help grow our economy.
The Government remains focused on returning to surplus and its long-term fiscal objective remains to reduce net core Crown debt to 20 per cent of GDP by 2020.
The key way the tax system can help achieve that is by providing revenue to spend on priority areas without having to borrow excessively, minimising costs to the taxpayer and promoting business certainty.
Tax is an important part of a well-functioning modern democracy, and it’s important that the costs imposed by taxation are kept to a minimum.
Tax policy can have substantial and wide-ranging effects on the economy, and when done well, has an important role to play especially by encouraging productivity and growth and making sure that taxes don’t get in the way of investment flowing to where it’s most valuable.
New Zealand’s relatively consistent broad-based, low rate tax policy framework is well regarded — and it’s not just me saying so.
The Tax Foundation in Washington DC found New Zealand to have the second most competitive tax system in the OECD.
And most survey respondents in Deloitte’s 2014 Asia Pacific Tax Complexity Survey Report rated New Zealand’s tax policies as straightforward, consistent and predictable compared with other countries in the region.
Consistency and predictability of the tax system are rated by the private sector as being particularly important. These factors combined with the relative simplicity and coherence of our policy settings mean that New Zealand enjoys high levels of tax compliance.
So I don’t see any need for an urgent or radical shift in tax policy settings.
But a good tax system comprises good tax policy, supported by a strong tax administration.
And looking ahead, there is an urgent need to improve the way that taxes are administered.
The need for change
The Government collects tax revenue to fund health and education, welfare, law and order and justice. It’s used to fund civil defence and emergency response, and so many other vital services. It supports NGOs up and down the country, that work hard to make people’s lives better with programmes like Breakfasts in Schools.
It’s important to keep providing these services, but there are challenges ahead.
The Secretary-General of the United Nations has noted that the fastest growing population segment worldwide is older people.
According to the UN Population Fund, by 2050 the population globally aged over 60 years will be larger than the global population aged under 15 years.
That’s relevant for fiscal policy because it means that we need to start thinking ahead.
An ageing population coupled with the increasing demand for world class healthcare and other services, will contribute to fiscal pressures.
The time to act is now, and today I am very happy to announce the Government’s response to begin preparing for our future.
I’m not talking about imposing new taxes or raising tax rates.
Instead we’re going to focus on making tax easier. Easier understand, easier to comply with, and easier for everyone to pay their fair share.
I’ve already said that our tax policies are amongst the best in the world. We need to ensure that they are applied and work as intended.
Today we take the first step towards modernising our tax administration.
In New Zealand we have a very high rate of compliance with the tax laws.
Compliance with tax obligations is actually a crucial consideration for any economy.
The overwhelming majority, who do the right thing and pay their taxes on time, are doing their bit for society and for the economy, and we don’t take that for granted.
So when people get into difficulties and seek help, the tax department will help work out a solution. But we can and must do a lot more than that.
Modernising tax administration
An important factor in encouraging compliance is to meet taxpayers’ expectations of customer service in the 21st century.
It is not just about replacing an ageing computer system. It’s about simplifying and modernising tax administration to reflect changes in technology, to meet customer expectations and to get us into good shape to face future opportunities.
The advent of the internet has meant a sea change for so many aspects of our lives. We now grocery shop online, pay bills and book hotels and flights online – and we can even watch the Black Caps from our phones.
The world is changing, and now it’s time the benefits of those changes were available to the New Zealand taxpayer.
Inland Revenue must be able to deliver in a world that’s moving fast.
It’s our opportunity to build a tax system that will best serve the needs and requirements of the public and of the Government now and in the future.
It’s in everyone’s interests to make it easy for those who want to do the right thing to comply.
Equally it needs to make it difficult not to comply.
And for a system that depends on voluntary compliance, we need tax to be fair and seen to be fair.
In the last 2 years we have done the ground work. We have spoken to groups, businesses, and individuals to understand what New Zealanders want to see fixed – the pain points for businesses and individuals – and how we can change tax administration rules to solve these.
We formed the Transformation Reference Group, the Simplification Panel and ICT Reference Group, to bring a range of external views on what’s needed, to challenge our thinking, and to identify benefits that can be delivered soon. These three groups represent large corporates, small and medium businesses, the ICT industry and individuals.
We ran a pilot in Hawkes Bay targeting small business owners. The “Save Time” campaign asked customers what Inland Revenue could do to make life easier for them. More than 1500 people contributed ideas and the simplification panel is working through these.
We have met, and continue to meet regularly, with accountants and the tax industry on policy and operational issues. We have spoken at ICT industry breakfasts and continue to meet regularly with key people in New Zealand’s ICT Industry.
Last year Treasury, Inland Revenue, and Victoria University hosted the Tax Administration for the 21st Century Conference, with a wide range of international and New Zealand speakers, to gain a good understanding of stakeholder views. The work of that conference has directly contributed to the ideas I am launching today.
So today I formally launch the transformation of tax administration in this country with the release of the first two consultation papers – in which we ask New Zealanders for their opinions on the future shape of tax service delivery.
The first document provides an overview of the general direction of the transformation programme as a whole, while the second document explores questions relating to providing better digital services.
The transformation programme is designed in a series of bite-sized pieces, each delivering benefits to New Zealand and providing a platform for the next step.
For example, it could be that we design a more customer-friendly, future-focused system to collect PAYE information, reducing compliance costs for employers.
This improved information collection in turn would benefit their workers because Inland Revenue would have more accurate information, making their tax return process much simpler.
PAYE information and deductions are massively important to the Government so we should be able to offer New Zealand a better option than the current process for receiving that information; the employer monthly schedule, or EMS.
The purpose of the EMS is good, but sadly it is a time-consuming, labour-intensive way for IRD to collect the vital payroll information it needs.
One way to reduce tax compliance costs for businesses is to create systems that provide for the transfer of two-way information between say the business’s payroll system and Inland Revenue’s.
This means that PAYE obligations would not be a separate process which adds time and costs but be met as part of the employer’s normal payroll process.
That is why we established a working group with 20 representatives from small, medium and large software developers to co-design how GST and PAYE information can be transferred to Inland Revenue in the future. In tandem, we are working closely with MYOB and XERO on how we can simplify tax processes for small businesses.
Integrating tax information into normal business practices is an attractive idea, but it creates some challenges in potentially requiring every employer to move to digital. We need to be careful we’re not simply shifting costs from government to business.
The Government believes that if businesses are spending less time on complying with tax obligations, they could be spending that time in more productive activities, such as growing their business.
I won’t go into all the details, but some of the other highlights in the consultation document include:
- Investigating options for simplifying the calculation of provisional tax
- integrating employers’ tax obligations into business processes, and
- providing individuals with an online return which lists PAYE income information received from their employer.
In rolling out its programme Inland Revenue will have to bear in mind the impact on business and the compliance costs associated with having to make changes to systems.
This will require ongoing stakeholder engagement to ensure that the Government is fully aware of the impacts on business so that they can be taken into account in planning for the implementation of the changes. For those businesses that do use an online system, I think this approach will reduce compliance costs over time.
While it is clearly desirable to avoid unnecessary compliance costs imposed on business in moving to digital channels, there may be one-off costs associated with software being able to interface with Inland Revenue’s.
But all of this will be explored in the public consultation and I will welcome your input on the proposals.
To comment on the proposals there is an online forum as well as the usual suite of consultation documents. Make sure you grab an information pack before you leave today. It has copies of these documents.
I said before that our rate of voluntary compliance is high.
It’s high because people believe that the laws are generally fair. And what makes them fair is that the public has had an opportunity to comment and shape those laws.
An internationally recognised strength of New Zealand’s tax system is its reliance on public consultation in order to ensure that tax policy proposals are effective and fair.
Because of your interest in the well-being of the economy, it is crucial that you express your views on the future of our tax administration.
A well-functioning tax system is one that works for the taxpayers it serves. The Government wants to hear your views on what that might look like.
Thank you for joining me for breakfast today. I hope you have enjoyed it. I also hope you have found my description of a future, more customer-focused, business-friendly tax administration equally palatable.
31 March 2015
Tax modernisation programme launched
Revenue Minister Todd McClay today released the first two in a series of public consultations designed to modernise and simplify the tax system.
“Taxes are an important part of a well-functioning modern economy, but it’s important that the costs imposed by taxation are kept to a minimum. The way we run the tax system must keep pace with the needs of taxpayers,” says Mr McClay.
“We need to make tax simpler. That’s why today I am launching public consultation to consider ideas for a tax administration for the future.”
Mr McClay launched the programme at a breakfast hosted by the Wellington Employers’ Chamber of Commerce.
“We need tax administration to be simple to use and new technology can help achieve that” Mr McClay says.
The first document, Making Tax Simpler – a Government green paper on tax administration aims to introduce New Zealand to the overall direction of the tax administration modernisation programme and seeks feedback on that direction. Consultation on that topic closes on 29 May 2015.
“This is an opportunity to stand back, look at our tax system as a whole and make changes that will simplify the system for the benefit of all New Zealanders. At the same time, we will modernise the technology that runs the tax system.” Says Mr McClay.
The second consultation document, Better Digital Services outlines proposals for greater use of electronic and online processes allowing faster, more accurate, more convenient interactions with Inland Revenue. Consultation closes on 15 May 2015.
“We are already working with New Zealand software development companies on solutions to simplify and significantly reduce the amount of time businesses spend on tax compliance. A working group with 20 representatives from small, medium and large software developers has been meeting since October last year to co-design how GST and PAYE information can be transferred to IRD in the future. In tandem, IRD is working with MYOB and Xero on how we can simplify tax processes for small businesses.
“The scale of the change proposed for the tax administration is unlike anything we’ve contemplated before and the proposals contained in the consultations launched today will affect us all at some level.
“This is your chance to help us build a simpler tax system because a simpler system is a better system” Mr McClay says.
To make a submission or to read the full details of proposals, go to www.makingtaxsimpler.ird.govt.nz
Media contact: Lesley Hamilton 027 490 1345