Annual report - 2004 - Part 3

Managing debt and outstanding returns from the 2004 Annual Report - 2

We strive to collect debt while it is young and therefore easier to collect, while continuing to clear older debt. This can be seen with the improvement in debt paid within 24 months.

Our approach to debt is reflected in our customers' satisfaction with our service. The nature of overdue debt collection means it is hard to achieve high levels of customer satisfaction. This year, of overdue debt customers surveyed, 66% were satisfied with our overdue debt collection activities, compared to 57% in 2002-03.

Debt and hardship provisions

The debt and hardship provisions (implemented in December 2002) provide us with greater flexibility when dealing with taxpayers who are in debt or financial hardship. These provisions are influential when considering a taxpayer's financial capacity to meet their debt repayments, particularly as they give us the flexibility to write debt off if repayment of the debt would place the taxpayer in "serious hardship". Being able to use these provisions has also resulted in the large increase in the amount of debt under instalment arrangement (as discussed earlier).

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^{19 The higher figure for 2002-03 reflects the expected higher levels of write-offs following the changes introduced on 1 December 2002.}

Improving debt profile from industry partnership approach

Looking at the longest-standing relationships (painters and decorators, electricians), the partnership approach has had some pleasing results relating to debt profiles. The following table compares the current profile to that before Industry Partnership's establishment just over two years ago.

Provision for doubtful debt

There will always be a need to make a provision to cover doubtful debts (see Note 9 in Part 7 of this report). For the 2003-04 year, the total provision was $554.6 million, which is $41.2 million over the 2003 provision.

Debt by tax type

The tax types comprising debt have remained relatively steady between 2003 and 2004. Minor reductions in family assistance and income tax debt have been offset by 2% increases in GST and student loans.

Family assistance debt

Family assistance debt, totalling $141.2 million, was $22.6 million lower than the 30 June 2003 total. Because people receiving family assistance can easily receive an over or underpayment when their circumstances change, we take proactive steps (such as checking actual income against predicted earnings) to avoid debt being incurred, or to minimise any debt that does occur. Although the percentage of family assistance customers with an overpayment debt remained at the same level as last year (28%), the value of those overpayments is steadily falling.

We have also used the debt and hardship provisions to consider whether family assistance debt can be collected, taking into account the current financial position of
the debtor.

Overdue student loan repayments

In 2003-04 there were 393,382 student loan borrowers living in New Zealand and 25,379 overseas.

As at 30 June 2004, there were 53,075 borrowers who had overdue repayments totalling $139 million. While the value is $37.8 million above last year it is $12 million below predicted levels. Overdue debt had been predicted to grow due to a combination of factors, including both increased borrower numbers and non-resident borrowers. Overdue repayments represent 2.3% of the total student loan balance.

Non-resident student loan borrowers continue to have a major impact on the level of repayments owing, as they account for a large number of debt cases that are relatively difficult to clear. To address this issue, we introduced measures to make it easier to repay, including a credit card payment option and the ability to securely look at account information online (see section e-government services).

The provision for doubtful debt for student loan borrowers is now $718.775 million.

Child support debt

This year we have seen the growth rate of child support assessment debt (the amount people have been assessed to pay, but have not paid) slowing from 18% to 14.5%.

Currently, our penalty debt is increasing with limited options available for debtors, other than paying off the full value of the assessment and penalty debt. Although sanctions for non-compliance are important they can also, over time, create a perceived barrier to people fully meeting their obligations. Proposed legislative change focuses on improvements to the way child support is administered, with a bill scheduled for introduction in the second half of 2004. The main proposal is to tackle the problem of child support debt by forgoing the collection of some penalties to provide an incentive for non-payers to re-enter the payment system.

Of total debt, 66,340 customers have an arrangement with Inland Revenue to make regular payments; a similar number to last year. The value of debt under instalment has grown by 6% this year to $261 million, although the percentage of debt under instalment has declined by 3% to 31%.

Other pages in: Annual report - 2004 - Part 3

• Our compliance model from the 2004 Annual Report
• Making it easy to comply from the 2004 Annual Report - 1
• Making it easy to comply from the 2004 Annual Report - 2
• Tailored services meeting needs from the 2004 Annual Report - 1
• Tailored services meeting needs from the 2004 Annual Report - 2
• Focusing audits on long-term compliance from the 2004 Annual Report
• Managing debt and outstanding returns from the 2004 Annual Report - 1
• Managing debt and outstanding returns from the 2004 Annual Report - 3
• Adjudicating and ruling on the law from the 2004 Annual Report
• Using the full force of the law from the 2004 Annual Report

Date published: 15 Nov 2004

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