19 November 2015
Speech to New Zealand Payroll Practitioners Association (NZPPA) Conference
Thank you for inviting me to join you once again. Over the last few years it has always been my great pleasure to come and speak to you.
Your role as payroll professionals and mine as Revenue Minister have a common interest in the smooth running of the tax system. If it works well for you, then it’s working for me.
We all use the tax system at one time or another, whether it is paying income tax, child support, paying off a student loan or receiving tax credits, it all goes through the tax system.
And a major component of it depends on how you do your job.
190,000 employers have PAYE obligations and as at February 2015 PAYE including employers’ superannuation contribution tax was 35 per cent of total tax collected by the IRD.
One of the first questions asked of me when I became Minister of Revenue was from this group.
It was something along the lines of the “EMS is a problem for us, what was I going to do about it.”
On that occasion, Lynn of Tawa helped me muddle through an answer.
I said that Business Transformation was the future.
Well, today I can say that it is.
My speech today will address that very thing and focus on better processes for providing payroll information to the IRD with some concrete proposals for simplifying the system.
Things have definitely progressed since the last time we spoke.
We now have some runs on the board that I can report to you from this year.
Earlier this year, we launched the first round of public consultation on the general direction of the programme to simplify and modernize our tax administration.
We also asked for your views on making greater use of digital technology as the vehicle for that simplification.
This year we completed the high-level design of the whole programme, and we are now preparing to move to implementation.
Other ongoing and important pieces of work have been with other Government agencies, on Better Public Services goals and common capabilities.
A bill was introduced into the House containing changes required to make the transformation of our tax administration a reality - bringing in changes as simple as allowing electronic signatures to be accepted rather than requiring paper-based signatures, which are now woefully out of date.
And the department is now working with FAST enterprises on a system to replace its FIRST mainframe computer. This will form the technological core of our new revenue system.
Meanwhile the IRD, working with Xero and MYOB, is about to launch a pilot programme allowing people to file their GST returns direct from their accounting software.
We have used, and will continue to use a mixture of New Zealand and international expertise to deliver on business transformation.
To date, 67 per cent of the spend on Business Transformation has gone to New Zealand companies, supporting businesses and creating jobs.
This equates to $54 million into the New Zealand economy - with another $26 million going to international companies.
And we’re also and stepping up engagement across the public and private sector, and stakeholder groups – hence my presence here today.
I’m pleased to be able to tell you that all major milestones were met on time and the programme has continued to run under budget.
In fact the programme’s performance in the last year has reinforced its track record of successful delivery and I am confident that we are going to successfully complete this project ahead of time and under budget from our original estimates.
As I mentioned last week, the programme is now planned to be completed within seven years instead of the ten years originally indicated.
Further, I fully expect the project to come in well below the highest projection of $1.9 billion – and it is now likely that the new Crown funding required will be under $1 billion.
It’s really great seeing it all come together, but there’s lots more to do.
So you may have heard that last week I launched the next phase of consultation on two topics: Towards a New Tax Administration Act and Better Administration of PAYE and GST.
I encourage you to comment on both, but I suspect (and hope) the second one will be of more interest to you, because that’s the one I’m going to talk to focus on today.
As I mentioned before, PAYE accounts for a big wedge of the revenue collected, so it’s important to the Government that we get it right.
The proposals focus not on what you do for PAYE, but how you do it – process improvements.
The objective is to make providing PAYE information less time consuming and therefore less costly for employers.
The key to unlocking that is greater use of digital technology.
I think there would be valuable benefits for all of us and for our economy.
As I mentioned earlier, along with tax; child support, KiwiSaver, Student Loans and others also go through the tax system and the PAYE system is critical for their function.
So in thinking about the operation of PAYE the Government needs to think about the system as a whole and the costs and benefits for employers, government and individual employees.
A major proposal being consulted on marks a big shift in thinking in moving from expecting employers to file PAYE information at a time required by Inland Revenue to integrating these obligations into the things employers would be doing anyway.
What if, rather than a fixed monthly basis, we shifted to providing payroll information on income paid and deductions made at the same time as you are paying staff.
And employers could send the information from within their payroll system by approving a feed of data to Inland Revenue. No need to save, attach (or in some cases print) and then send files to IRD.
I just want to emphasise a point there. The employer will have to approve the feed of data.
The proposal that employer’s software could connect to Inland Revenue’s system does not mean that Inland Revenue can go into an employer’s system and collect data.
Every transfer of information would be approved by an authorised representative of the employer, but it would be a much more seamless process than at present.
The Government understands that for this to represent a significant saving for employers with large complex payrolls there would need to be a simple process for correcting “errors” and adjusting the data that is sent when the payroll is finalised. The discussion document also contains proposals in that area.
These are process improvements that we believe will benefit employers.
There are also a number of proposals around the rules for calculating PAYE. The discussion in this area focuses on things employers have told Inland Revenue are confusing or complex.
Another process that the Government believes could improve significantly which would reduce re-work for payroll professionals and save the employee problems is getting deductions correct and more timely for new employees from the start.
We think we can be smarter about how this is done.
It should be possible that when you add a new employee to the payroll and have the relevant fields complete, your payroll system will prompt you to “provide details to Inland Revenue”.
And, as long as the IRD number is correct, the Inland Revenue system will automatically message you back with:
- any necessary change to the proposed tax code, for example for student loans
- the new employee’s KiwiSaver status and relevant deduction rate; and
- any child support or overdue tax deductions to be made.
There are a range of other similar proposals such as for Inland Revenue to send notice of changes to deductions – such as the annual child support updates – in a form that, once the employer has accepted them, can be automatically uploaded.
These sorts of proposals will, we hope lead to less time spent on PAYE obligations.
I’m sure you are interested in how these PAYE changes could be rolled out.
Because timely accurate PAYE information is important to the correct delivery of social policy and a prerequisite for future changes, Government is considering whether it should require employers to change the way they supply PAYE information.
Three options are set out for your consideration: the voluntary-first approach, the review approach and a legislated approach.
All would have possible exemptions for those employers who cannot access digital services and the Government understands that large organisations and those with complex payrolls could require a significant lead-in time to implement software changes.
Under the voluntary-first approach, employers could choose to adopt the new way of doing things and meet their existing obligation by providing PAYE information when the business process occurs.
Following a significant voluntary uptake a review would be held.
If it was found that the benefits of the new way of working justified the costs of change employers would be provided with a date by which they would be required to provide PAYE information at the time the business process occurs.
A review approach would work like the above except the date for the review would be identified from the beginning. The initial voluntary period would operate like a trial.
A legislated implementation approach is where the legislation enabling the changed process would specify a future date, or dates, by which time employers have to provide PAYE information on the new basis.
I would encourage you all to make a submission on which approach would make sense from a practical point of view.
Before I finish I want to address another area where the two discussion documents intersect and that is around secrecy and confidentiality.
A key assumption, across all the new services to simplify tax, is that they have to keep confidential information secure and the PAYE document outlines at a high level how this will be achieved.
But we also have to respond to changing customer expectations - when contact details change people don’t want to have to tell five different government agencies they want to tell government once.
Cross-government service and our evolving, digital world brings a new challenge and the other discussion document ‘Towards a new Tax Administration Act’ explores ideas like “could taxpayers consent to the release of their own information in some circumstances”?
Again, if you are interested in those questions I’d encourage you to also look at and comment on that document.
You can make a submission online by visiting, makingtaxsimpler.ird.govt.nz or pick up a flyer from the IRD stand.
Transforming the tax system is a big job, and given the importance of the PAYE system, we need to get it right.
The public needs to have confidence in a smoothly running tax system. So as always, such proposals are subject to public consultation.
I understand there is a presentation later in the programme from Inland Revenue officials and that they have a stand here – I suggest you take those opportunities to learn more about what is proposed.
We want to hear your thoughts.
If you think that a proposal is not going to work then I value your insights – tell us why it won’t work or what improvements could be made to what is being proposed in this current consultation.
As payroll professionals, this is your opportunity to make a difference.
We are not yet at the stage of final decision or detailed design for these changes so now is the time to share your professional voice.