12 June, 2014
Address to 21st Century Tax Administration Conference
Thank you for inviting me to be with you today.
Firstly, I’d like to welcome Professor Chris Evans, Professor of Taxation at the Australian School of Business, James Alm, Chair of the Department of Economics at Tulane University and Michael Keen, Deputy Director at the Fiscal Affairs Department, at the IMF.
The strength of the New Zealand tax system is its highly cooperative nature so it’s great to have such world leading speakers here with us. I'm sure tax policy and IRD's Business Transformation programme can only benefit from your expertise.
Michael Keen, I should mention, is also the current visiting lecturer brought out under the Robin Oliver Tax Policy Scholarships which aims to promote the development of tax policy expertise in New Zealand.
As we embark upon one of the NZ Tax System's largest reform programmes we face both opportunity and challenge.
Business Transformation is about simplifying and modernising the tax system for New Zealand taxpayers. At its heart is tax policy, which must go hand in hand with a modern - fit for purpose tax administration.
I’m intentionally focusing on the policy aspect because Inland Revenue’s transformation is more than simply replacing an ageing computer. It's about challenging what we currently do against the need to do more for New Zealand businesses.
BT is about designing and building a tax system for a modern New Zealand. New Zealand is well-served by its tax system, Business Transformation is a means to ensure that we continue to be well served into the future.
We know that tax administration needs to continually adapt and evolve. The Government wants a system which is efficient, provides value for money, and services which are valued by the public.
And it’s particularly important that we bring the public and business community with us on this journey. One of the true tests of the transformation programme will be how it makes paying tax easier and fairer.
Reducing the time and cost related to compliance is an ongoing process however and not something that we're sitting back and waiting for BT to achieve.
Inland Revenue is already putting a lot of effort into making tax compliance easier, examples include:
- One million people now using Voice ID – a secure digital identification service that allows customers to verify their identity and access automated tax self-services; this saves a staggering 8500 hours of telephone time each year.
- More than 1.7 million people have been registered for myIR – a secure online service that allows people to check their tax details, child support, Working for Families and KiwiSaver accounts, and submit GST returns online; and
- Parents no longer have to be verified in person to get an IRD number for their new-born. Instead they can apply for an IRD number when they register the birth with the Department of Internal Affairs.
These and many other initiatives are already making dealing with IRD faster and easier for New Zealanders.
Some of you will also be aware that I recently announced the Taxpayers Simplification Panel to provide taxpayers a forum through which they can let us know the ongoing compliance issues that frustrate them.
However, more on that later.
I would like to take a moment to put some context around all of this and reflect on the significant progress we've made since the Global Financial Crisis.
Around the world today, nations are facing some big fiscal and economic challenges that have in some cases demanded fairly drastic responses. The recent Budget in Australia is a case in point.
Our response to the Global Financial Crisis was deliberately measured, with a clear and definite plan, and without a sense of panic.
We are now starting to experience the benefits of the government's discipline and economic plan.
The New Zealand economy continues to expand - faster than almost every other developed nation. It grew by 3.1 per cent in 2013 – the fifth-highest among the world’s developed economies. Growth is forecast to reach 4 per cent next year.
An extra 84,000 jobs were created in the year to March and Treasury forecasts the unemployment rate, currently at 6 per cent, to fall to 4.4 per cent by mid-2018.
Business confidence is at its highest level in 20 years, terms of trade remain high and average wages increased by $3000 dollars in the past two years.
The Budget forecasts average wages to grow by another $7600 dollars to $62,300 by 2018.
So New Zealand is well placed compared to most countries.
At the height of the GFC tax revenue fell from $56 billion in 2008 to $50 billion by 2010. It has subsequently largely recovered, and is forecast to grow to $77 billion by 2018.
However, while the recovery is gathering momentum, the global economic environment still remains uncertain.
It is therefore important to maintain clear and credible economic and fiscal settings as the best means to encourage growth, create new jobs, raise incomes, and help kiwi families get ahead.
Government debt is expected to fall to 20 per cent of GDP by 2020 – well below the 60 per cent Treasury projected when we took Government in 2008.
The Government is on track to a modest $372 million Budget surplus next year, with increasing surpluses in the coming years, out to $3.5 billion in 2017/18.
This provides us with choices about repaying debt and investing in important public services such as health, education and rebuilding Christchurch.
At the heart of this return to surplus and an improving economic outlook is our tax system and specifically our broad-based, low-rate tax settings (BBLR).
It’s clear that BBLR is the unsung hero of New Zealand’s fiscal recovery. By focusing on making small changes to ensure everyone pays their fair share of tax, the Government’s revenue remains solid without imposing extra taxes that would slow economic growth.
However, our tax administration is dated and for the taxpayer still largely paper based. It reflects its history, shows the scars of a series of changes and additions as it evolved from purely tax to one which also oversees various non-tax initiatives such as KiwiSaver and Child Support.
It has served us well, and continues to do so, but the world and the economy are changing quickly and our tax administration needs to catch up.
Back in the 1980s when mobile phones were first conceived, no one dreamed they would have consequences for the tax system.
Today even the most technologically illiterate amongst us use mobile apps each and every day.
Widespread use of PCs and mobile devices mean people expect to do more of their transactions online – including their tax affairs.
For most people, using paper channels is no longer the most cost effective or convenient method for any of their transactions, including the tax department.
Our fax machines have been replaced by scanners, which too are increasingly becoming redundant as everything is done online.
These factors put pressure on tax systems.
BBLR means tax administration benefits from a regime based on voluntary compliance. It’s an efficient way to run a tax system as long as compliance remains high. This works well for us in New Zealand.
However failing to keep up with customer expectations can see levels of compliance drop.
After all, if people can conduct all their other business and personal activities easily, grocery shopping, buying a home or getting approval for a mortgage or planning an overseas trip for instance, using new and increasing changing technology, by clinging to a paper-based model we risk becoming out-of-step with a modern economy, instead making it more difficult not less for taxpayers to meet their obligation.
In future the tax system with need to rely upon BBLR-C. Broad based, low rate, and convenient.
The Government has therefore taken a step back to critically consider the wider implications for tax administration of a growing public appetite for greater customer service and convenience.
When consumers can download the next movie, or book or song instantly from their own homes, when the entire Encyclopaedia Britannia and more is but a google search away, it's no wonder that our taxpayers expect more from us and quickly.
Let me be clear, BT is not merely about new computer systems. It’s about examining all of our business processes and functions and making them fit for the 21st Century. In this everything is in the table.
So what are the first steps?
After a significant period of planning, Inland Revenue is now ready to consider design proposals for what can be done to improve tax administration.
The objectives are:
- To ensure better public services by making sure we collect and disburse the correct amount of tax in a cost-effective manner;
- To enable taxpayers wherever possible, to manage their own tax affairs with speed and certainty
- To ensure that the tax administration process and systems are flexible enough to implement government priorities in a cost effective and timely manner; and,
- Most importantly to reduce compliance costs for businesses and individuals.
Taxpayers can expect a focus on making the system easier for them, to provide greater certainty in their dealings with the tax department.
In expecting taxpayers to comply with tax rules where possible we will work to make these rules simpler, and in so doing reduce administrative and compliance costs to help them meet their obligations more easily.
Our tax policy process relies heavily on public consultation more than any country in the world. In fact it is all the better for it.
One of the aims of this conference is to help develop a policy vision that maps out key areas for consideration in support of a modern tax system. Your consideration will help inform concrete policy proposals for full public consultation.
I expect that many of the most important suggestions might well come from taxpayers, their advisors, and intermediaries.
IRD is making a genuine offer to work together to improve tax administration in New Zealand, for New Zealand.
This brings me back to the Taxpayer’s Simplification Panel.
The Panel is designed to listen to the public’s opinions on Inland Revenue’s processes, to tell us about the things that frustrate people, and submit ideas about what can be done to make paying tax easier.
We have already developed robust means to engage with the business, tax and legal professions in respect of Transformation.
I am particularly keen for the Panel to engage with small-to-medium business owners, as well as individuals, about how we can reduce the amount of time they spend on compliance – because at the end of the day, every hour spent on paying tax is another hour they can’t spend growing their businesses and creating jobs.
The Panel is part of the IR4U programme of better engaging with the public, it will consist of representatives of individual taxpayers, small business, and also the tax advisory community.
It will be managed by Inland Revenue and will report to both the
Commissioner and I on a regular basis with recommendations it gains from ongoing public consultation.
The membership and formation of the Panel will be announced within the coming weeks.
I wish the Panel every success and I look forward to receiving its first set of recommendations.
So in conclusion, as I’ve already said, we have much to be proud of with our tax system.
It is a significant national asset and one that needs to be carefully maintained.
Our broad-based, low rate framework provides us with a fair tax system while helping to pay the bills.
Revenue is relatively stable and is helping the Government reach our fiscal goals.
But the world keeps turning and the best tax rules are ineffective without a sound tax administration to implement them efficiently.
Business Transformation is an exciting opportunity. It's a journey towards a stronger economy and a fairer and easier tax system. I invite all of you to join us on this journey.