Annual Report 2006: Part two - Delivering on our outcomes
Debt management
In 2005-06 we:
- collected $1,774 million in overdue debt, 18.9% more than last year
- cleared 496,213 debt cases, an increase of 2.8% on last year's total.
This year, greater emphasis was placed on the collection of higher risk debt. This change in emphasis resulted in more debt cases being cleared, especially high value cases, and the substantial increase in overdue debt collected.
Although more debt has been collected, overdue debt at the end of June 2006 was $3,515 million, 21.9% more than June 2005. This increase was influenced by a number of factors including:
- buoyant economic conditions
- continued growth in the number of income tax registrations (3.9%)
- more debt arising as a result of our audit activity.
The debt resulting from our audit activity - especially audits of tax avoidance schemes - was $514 million at the end of June 2006. Much of this is non-collectable debt because the tax liabilities resulting from the audits have been deferred or are under dispute in the courts.
Figure 5 -
Overdue debt collected
New Zealand's ratio of gross year-end debt to revenue is comparable to other countries in the OECD with similar tax systems. Figure 6 shows the ratio for selected countries. The OECD cautions that care should be taken with this analysis particularly because countries have differing write-off policies and approaches to enforcement and verification activities.
|
Country |
2004 ratio of gross debt to revenue % |
|---|---|
| Canada |
9.0% |
| Australia |
8.1% |
| United States of America |
6.2% |
| New Zealand |
6.2% |
| Ireland |
3.4% |
| Source: OECD Comparative Information Series, April 2006 | |
In 2006-07 we will be focusing more closely on the collection of overdue debt and the factors that lead taxpayers into debt situations.
Figure 7 -
Components of overdue debt
| Total overdue debt Increase in past year |
$3,515 million $632 million |
| Non-collectable debt Increase in past year |
$1,635 $305 million |
| Debt under instalment Increase in past year |
$766 million $127 million |
| Net collectable debt Increase in past year |
$1,114 million $200 million |
Total overdue debt is the total of all debt types recorded in the debt system. This includes student loan overdue repayments and family assistance debt, but excludes child support debt.
Non-collectable debt is debt that cannot currently be collected. It includes:
- debt deferred or under dispute in the courts ($739 million, compared to $570 million last year). Much of this debt relates to litigation following tax audits, and the increase reflects the larger and more complex cases being handled
- assessments raised by Inland Revenue in the absence of a return filed by a taxpayer ($670 million compared to $564 million last year). This increase reflects the higher number of outstanding returns
- tax owing that is subject to bankruptcy, liquidation or receivership action, that is debt with the Official Assignee or Liquidator ($92 million compared to $63 million last year)
- debt identified as possibly eligible for write-off ($134 million compared to $132 million last year).
Collectable debt includes:
- debt being repaid under instalment ($766 million compared to $639 million last year)
- net collectable debt where collection action has started or is pending ($1,114 million compared to $914 million last year).
The composition of total overdue debt by tax type has remained relatively steady since last year.
Figure 8 -
Total overdue debt by tax type
Overdue student loan repayments
At 30 June 2006, 72,888 borrowers had overdue repayments totalling $254 million (15.5% of all borrowers and 3.4% of the total amount borrowed). Non-resident borrowers have a major impact on the level of overdue repayments. 50.4% have overdue obligations compared to 13.3% of resident borrowers. They have an average overdue repayment of $10,900 compared to $1,735 for resident borrowers.
Figure 9 -
Overdue student loan repayments
Family assistance debt
Family assistance debt was down by $20 million to $152 million at 30 June 2006. At the same time, the total amount of family assistance distributed by Inland Revenue and the Ministry of Social Development has risen from $1,001 million to $1,455 million.
To reduce the likelihood of people receiving an over- or under-payment of family assistance when their circumstances change, we take proactive steps, such as checking actual income throughout the year against predicted earnings. This aims to ensure that customers receive their correct entitlements and minimise any debt that does occur. We introduced a new calculation process in April 2005, called "accumulative adjustments", which provides customers with additional protection from overpayments. When family circumstances change, the accumulative adjustments process takes into account payments already made in calculating future payments for the year.
Child support debt7
At 30 June 2006, total New Zealand child support debt was $1,083 million.
Figure 10 -
Components of child support debt
Growth in overall debt this year was 8.1%, which was significantly better than our target of less than 12% growth. The rate of growth has slowed in the past three years. This is partly due to the effect of our compliance and enforcement strategy actions, such as preventing new parents from falling into debt and clearing high value debt cases.
The provisions in the Child Support Amendment Bill that provide for partial penalty write-off, if a customer keeps to a repayment arrangement, will further slow the growth of debt and will assist in the greater recovery of overdue payments.
Approximately 72% of paying parents have a child support debt. Of these, 30% owe less than $500, 10% owe between $500 and $1,000 and 20% owe more than $10,000.
Uncollectable debt - debt where repayments are unlikely in the foreseeable future because the debtor is in hospital or prison, or cannot be located after rigorous efforts.
Under instalment arrangement - debtors who have an arrangement with us to make regular repayments.
Not yet under arrangement - for those who remain unwilling to make regular repayments, we consider legal action. Our options for legal action include distress warrants, charging orders, examinations, and arrest warrants.
Reciprocal agreement - debt of New Zealand paying parents living in Australia under collection by the Australian Child Support Agency.
The reciprocal agreement for the collection of child support with the Australian Child Support Agency has been in place since July 2000. We received additional funding to transfer a further 4,000 cases to Australia by 30 June 2007.
|
Cases |
Debt owed $ million |
Debt received this year $ million | |
|---|---|---|---|
| New Zealand cases handled by Australian Child Support Agency |
5,478 |
$161.3 |
$8.3 |
| Australian cases handled by New Zealand Child Support |
3,846 |
$30.2 |
$6.3 |
7. Debt ($30.2 million) being collected from Australian paying parents on behalf of the Australian Child Support Agency has been excluded from all debt measures.
Date published: 06 Nov 2006
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