Chapter 5 - Benefits and risks of increased information-sharing
5.1 This chapter discusses whether the benefits of taxpayer secrecy outweigh the costs of not sharing information in relation to serious offences.
Benefits from increased information-sharing
5.2 The role of Inland Revenue has become increasingly complex. Correspondingly, the information held by Inland Revenue about individuals, families, relationships and personal lives has generally become more detailed. Inland Revenue manages sensitive information such as information on personal income, family relationships, child support and savings. People have a reasonable expectation that the information they provide will be treated confidentially. The Government does not intend to change this default position. It is considering whether that expectation of confidentiality should apply to information which may be relevant to the detection, prevention and prosecution of serious crime.
5.3 Possible benefits of increased information-sharing in relation to serious offending include:
- A reduction in offending: Society as a whole would benefit if those committing offences such as serious fraud were apprehended and stopped earlier or the offending was prevented altogether.
- Increased government effectiveness: Tax secrecy may maximise tax revenue but this may be at the cost of the integrity of other government functions, such as preventing fraud, protecting investors, and preventing harm to vulnerable individuals and groups in society.
- Better use of specialist resources: If more information were shared by Inland Revenue, other agencies could use their own resources more efficiently and conduct their investigations in a more timely and efficient manner. The availability of additional information may also, in some cases, result in investigations not being pursued against individuals or entities as the further information discloses that no offending is in fact occurring. This is both a more efficient use of specialist resources and potentially reduces the period of intrusion of law enforcement agencies into citizens’ affairs.
- Alignment with international tax information-sharing norms: There is increasing pressure internationally for greater information-sharing in order to combat organised and financial crimes. In relation to domestic information-sharing, New Zealand is currently out-of-step with international norms. This has the potential to adversely affect New Zealand’s international agreements, result in New Zealand being on grey and black lists, and make it more difficult for New Zealanders to do business internationally.
- Increased fairness: Inland Revenue currently shares information to reduce social welfare abuse, but does not share information to prevent other crimes such as significant white-collar crime. This could be seen as discriminatory. It may also affect perception of fairness across the tax system and the fairness of government more generally.
Improving the Government’s response to organised crime
5.4 The Government has an on-going programme of responding to organised crime. Currently, improvements are being made in the areas of:
- mutual legal assistance both domestically and internationally;
- protections against misuse of legal structures such as use of companies and trusts to alienate or disguise beneficial ownership;
- protection against bribery and corruption, money laundering and cyber-crime;
- investigation and enforcement; and
- protection against identity crime.
5.5 Inland Revenue’s view is that the proposed amendments to the current secrecy rules could significantly increase the effectiveness of its contribution to the Government’s response to organised crime. This conclusion is based on Inland Revenue’s recent participation in a criminal taskforce. Inland Revenue’s inability to share information affected the taskforce’s efficiency by:
- not being able to provide relevant contextual information; and
- reducing the scope for Inland Revenue to be an effective part of the taskforce’s efforts to achieve its goals.
5.6 Having access to Inland Revenue’s information would have contributed to the taskforce achieving a speedier result.
5.7 The Government does not see a tax revenue benefit from the information-sharing proposals. In fact, it is likely that tax revenue will be reduced to the extent that tax currently is paid on financial offences. However, any reduction in revenue is likely to be offset by revenue gains from reduced financial crime, some of which may be against the Government or against taxpayers who report less income as a consequence of the crime. On balance, the fiscal implications of this proposal are most likely neutral to the Crown.
Likely costs of increased information-sharing
5.8 The main risk is to voluntary compliance as taxpayers, both those who are committing serious offences and others, reduce their compliance with tax obligations because they find information-sharing by Inland Revenue unacceptable.
5.9 Inland Revenue believes that the impact on voluntary compliance by those who are committing serious offences is likely to be small. Its judgement is that those who commit crime tend to commit crime across all their responsibilities as citizens, including tax.
5.10 Based on research conducted by Inland Revenue, it is likely that only a small minority will disagree with the proposals and, as a result, attempt to modify their tax compliance. However, most taxpayers are likely to consider increased information-sharing improves both the fairness of government and the tax system.
5.11 There is some risk that information-sharing could result in a secrecy breach. This could bring information-sharing more generally into disrepute. A related point is that any information-sharing also carries a risk of sharing inaccurate information or information about the wrong individual or entity. However, officials have assured the Government their emphasis will be on the integrity of process and they will work closely with the Privacy Commissioner.
5.12 The Government believes the benefits of information-sharing with other enforcement agencies can be supported in the case of serious offences. The proposed information-sharing has several potential benefits, such as increased fairness, reduction in offending, increased government effectiveness and better use of specialist resources. The risks, chiefly the risk of reducing voluntary compliance, are likely to be small, and are outweighed by the potential benefits of the proposal.
5.13 The proposal is consistent with the key “fit-for-purpose” features identified by research participants as necessary to ensure sharing was within acceptable bounds. It is less consistent with the features identified in the earlier research. In relation to the factors summarised at paragraph 3.14, we consider the proposal demonstrates transparency, defined boundaries and is relevant to the specific public sector cluster that is responsible for enforcement. Factors relating to customer control and service needs are not the focus of this discussion document.
Example scenario: Investigation of identity fraud against Inland Revenue highlighting wider identity offence
Inland Revenue identifies an individual who has defrauded Inland Revenue using false identities. During investigation of the individual, Inland Revenue discovers that the same identities have been used to perpetrate frauds against other institutions including banks, government agencies and retailers.
Under the proposed rules, Inland Revenue could inform the New Zealand Police of the individual and provide relevant supporting information, including a list of those other taxpayers who may have been defrauded.
Questions for submitters
5.14 Submissions on any of the matters outlined in this chapter are welcomed, including:
- possible other benefits of information-sharing by Inland Revenue to prevent serious offences; and
- the judgement that the risks of Inland Revenue sharing information are minor if sharing is limited to serious offences.
12 See chapter 3.