Inland Revenue faces huge funding shortfall

Inland Revenue could be left with a fiscal hole of hundreds of millions of dollars over the next three years due to fears planned savings from the rollout of its much-heralded transformation programme may not materialise.

The organisation is in the midst of a ‘‘transformation’’ to modernise the tax system with new digital systems and ways of working but parts of that transformation have been delayed.

IRD had big ambitions for the programme. A paper from 2018 said it hoped to make $495 million in administrative savings between 2017 and 2024.

It also hoped to rake in a lot more tax through improved systems. It thought as much as $2.8 billion in additional revenue could be raised between 2018 and 2024. But disruption from Covid19 meant it put some of those changes on hold. One part of this was called ‘‘organisational design’’ or ‘‘organisation change’’.

In an update to former Revenue Minister Stuart Nash from July, IRD warned this would be delayed as it was putting more resources into supporting its Covid-19 response.

The paper said IRD did not want the ‘‘distraction of a consultation process’’ that organisation change would bring.

But IRD warned ministers that delaying the change ‘‘may have implications for Inland Revenue’s ability to realise the administrative savings’’. That is a bit of a problem for IRD’s finances.

IRD was so confident it could deliver the savings that it had them removed from its baseline government funding it receives every year. That means if those big annual savings do not materialise, IRD could face challenges funding its day-to-day work.

The paper said changes to rolling out the system might have

an impact on the IRD’s ability to raise additional revenue.

Tax consultant Terry Baucher said IRD’s systems were already under strain before Covid-19 hit. ‘‘Covid-19 threw some unexpected demands on IR . . . They were off the pace before Covid-19.’’

He said the strain on the organisation was obvious tor tax consultants like himself who were in touch with IRD regularly.

‘‘We can’t get hold of them at times,’’ Baucher said.

‘‘The dedicated agents’ line hours were cut dramatically and we have had problems getting through to it,’’ he said.

The paper also carried a caution from the central agencies – Treasury, State Services Commission (now the Public Service Commission) and the chief digital officer. They warned there were ‘‘significant challenges to sustainably realising the projected revenue uplift and administrative savings, while also maintaining the tax system’s integrity at current levels’’.

The central agencies also warned the current baseline funding forecasts implied ‘‘a significant reduction in staff levels’’.

But reducing the number of staff could make it more difficult for IRD to respond to the challenges of Covid-19.

‘‘There is a risk this decreases their ability to deliver their required outputs.

The comments from the central agencies suggest the Government might think about topping up IRD’s funding to plug the hole.

The current baseline funding forecasts implied ‘‘a significant reduction in staff levels’’. Government central agencies