Chapter 2 - Why the way tax is administered matters

The term “Tax Administration” refers to the system for delivering the tax and social policies that are administered by Inland Revenue.

WHY IS IT IMPORTANT?

A key part of New Zealand’s infrastructure

Taxes are by far the biggest source of government revenue. They fund schools, hospitals, roads, policing, social welfare, and other government- provided services.

Because tax revenue is critical to delivering government services, and the same administrative system is used to provide many social services, the tax administration system operated by Inland Revenue is a key part of the infrastructure which supports New Zealand society.

More New Zealanders interact with Inland Revenue than with any other government agency. The efficiency and effectiveness of the tax administration system is important for:

• everyone who interacts with Inland Revenue to meet their tax obligations or access their entitlements;
• everyone who uses services provided by the New Zealand Government; and
• taxpayers, who pay the system’s costs.

It is big and expensive

There are millions of interactions with the tax administration system every day, across the economy. These interactions include:

• tax deductions from salaries, wages, and interest payments;
• payments like income tax;
• other amounts like student loan repayments; and
• Working for Families tax credits.

There are significant costs for businesses and individuals in meeting their tax obligations to Inland Revenue. In addition, administering the tax system cost the Government over $650 million in 2013/14.

The Government’s “Better Public Services” programme has a clear expectation of improved services to the public, and a reduction in costs in dealing with government agencies. A key consideration for this Government is how the tax administration system can use modern digital technology and connected government services to improve the customer experience and reduce compliance costs for customers and administrative costs for Inland Revenue. Greater levels of tax compliance – as a result of tax obligations being easier to meet, and reducing the opportunity for mistakes – is also important.