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Inland Revenue

Tax Policy

1 - Introduction

Inland Revenue plays a critical role in improving the economic and social wellbeing of New Zealanders by collecting and distributing money. We collect over 80 percent of the Crown’s revenue. We also administer social policies such as child support, Working for Families, KiwiSaver and student loan repayments.

Our success is reflected in three outcomes:

  • Revenue is available to fund government programmes through people meeting payment obligations of their own accord.
  • People receive payments they are entitled to, enabling them to participate in society.
  • New Zealanders benefit economically and socially through Inland Revenue working collaboratively across our external environment.

We want to make it easy for our customers to interact with us and to pay and receive the right amount. We also want to continue to meet the changing expectations of government and society.

With the advent of the various social policy functions, Inland Revenue is now the government agency that more New Zealanders deal with every day than any other agency. As such, Inland Revenue has responsibility for, or a major role in, seven regulatory systems:

  • Revenue raising and collection (with two sub-systems: income tax and consumption tax);
  • Working for Families tax credits;
  • Child support;
  • KiwiSaver;
  • Student loans;
  • Paid parental leave; and
  • Information sharing.

Regulatory systems are the set of rules, norms and sanctions, given effect through the actions and practices of designated actors, to shape behaviour or interactions in pursuit of a broad goal or outcome. This document explains Inland Revenue’s stewardship of those regulatory systems.

Environmental context

For Inland Revenue, good stewardship of the regulatory systems means developing policy and designing administrative processes that will protect the tax system, by taking into account the various factors that contribute to a good tax and social policy system.

In New Zealand, a good tax and social policy system is an essential part of our economy and society.

The tax system is a major national asset. Taxes raise money to finance government spending. This is essential if New Zealand is to provide the healthcare, education and other government services that its citizens expect. A robust tax base and high levels of voluntary compliance are critical. At the same time Inland Revenue needs to have effective enforcement so that the minority of taxpayers who do not willingly comply are compelled to do so.

Almost one third of New Zealand’s GDP is collected in tax. This is a major intervention in the economy, so it is important that the tax system works well.

Taxes create costs. In addition to the revenue raised (which is a transfer from taxpayers to the Government) there will be a set of additional or “deadweight” costs. These include costs to taxpayers in complying with the tax system, costs to Inland Revenue in administering the tax system and distortionary costs to the economy because of the way that taxes can cause firms and individuals to do things that would not be sensible in the absence of tax. For example, taxes can discourage people from working as long or as hard as they would in the absence of tax or from investing in businesses. Taxes can cause firms to invest in inefficient ways of working.

Over time, Inland Revenue has increasingly been used as an agency for delivering social policy programmes. Social policy measures administered by Inland Revenue also create compliance costs, administration costs and distortionary costs. Good policy will keep all of these costs to a minimum.

Our operating environment

We are continually evaluating our environment to identify existing and emerging trends, risks and opportunities. This allows us to be ready to respond, ensuring sustainable and successful delivery of our services.

Historically, the New Zealand public sector operating environment has been relatively uniform and stable, with clear boundaries. However, the last few decades have seen global drivers of change affecting New Zealand in unprecedented ways. We recognise that our world is now characterised by diversity, volatility and permeability, and that new times require new responses. We must continue to maintain the integrity of the tax system as New Zealand’s population becomes more diverse, digitally connected, and mobile.

Like all countries, New Zealand needs to respond to domestic and international threats to our revenue from tax avoidance and evasion, as well as wider change drivers such as technology-driven change and volatility in the global economy. New Zealand’s population is changing, with increasing numbers of migrants who have different service needs. Our ageing population will also have economic costs and will put pressure on our revenue base.

We will continue working to:

  • build our capability to identify and assess emerging trends;
  • challenge our assumptions about the future and apply insights about possible future scenarios to make better decisions today;
  • build agility within Inland Revenue, including speed and ability to shift resources;
  • make better connections between our futures thinking, decision-making, planning, policy design and implementation, and risk-assessment processes; and
  • rethink how we collaborate with other government agencies, the private sector, customers and stakeholders.

At the same time, the Government’s Business Transformation programme aims to modernise our tax administration and make it easier for people to get their taxes right and difficult to get wrong.

The programme will enable and support a refocus of our compliance approach from reactive enforcement to proactively facilitating compliance. There is an opportunity to design a customer-centric environment which enables compliant behaviour “right from the start”, rather than correcting non-compliant behaviour afterwards. An example of “right from the start” is the proposed change to Working for Families which will mean that income and entitlement will be determined more frequently, and therefore will reduce the need for reconciliation and adjustment. This provides greater household income certainty as well as reducing the administrative and compliance costs of the system. The environment (and supporting systems) will be shaped around better understanding of customer behaviour and lifecycles. We will seek to shape this behaviour by influencing customers’ capability, motivation and opportunities to comply.

Improving services for New Zealanders

We recognise that a connected, collaborative public sector can better serve New Zealanders’ needs in a number of ways. We also recognise that the information we have is a strategic asset that can be shared to benefit government and society. We want to improve our collective ability to serve our customers well. We do this through contributing to the Better Public Services programme (particularly, Result 9 and 10), the Digital Government framework, and by sharing information and working with other government agencies.

The Business Transformation programme is a key initiative that will deliver on many of the outcomes sought through Better Public Services, as it will significantly reduce effort for New Zealanders and businesses, making it much easier to deal with government. It also contributes to the Government’s objective for more integrated public services.

We are working closely with other government agencies to deliver the innovative and effective public services that government and our customers expect. We are linking more of our customer services with those of other government agencies to provide a seamless service.

Through information sharing we assist other government departments to access data which helps New Zealanders and the public service through more accurately targeted services and support. We protect customer privacy and the integrity of the tax system when considering the benefits of greater information sharing across government.