Part three - Key strategies and charter report: An effective and efficient organisation

An effective and efficient organisation

Measuring organisational efficiency

We have agreed to a three-year work programme with the Cabinet Committee on Expenditure and Administration to assess our efficiency and effectiveness. We are taking into account the impact that interventions have on achieving intermediate outcomes and cost-effectiveness. The work programme complements our existing high-level indicators of efficiency and data from the OECD that compares New Zealand's tax collection costs to countries with similar systems.

First results from research on compliance behaviour

In 2006-07 we tested a method for determining our impact on customers' filing and paying compliance behaviour, based on our compliance model. We intend to determine a baseline with 2001-05 data that we can compare later year performance against.

The preliminary results below are based on sample data of about half a million filing and paying events between 2001 and 2005. They show that, of the customer group examined:

• 83% complied with the majority of their filing and paying obligations
• 9% had a moderate level of compliance issues
• 8% demonstrated poor levels of compliance.

These results only include customers who had some choice about compliance. It excludes customers who are employees and have tax deducted through their employer's PAYE systems.

High-level efficiency indicators

For the past two years we have measured key factors such as:

• our workload during the year
• the level of our annual funding
• how well we delivered our outputs.

In the six years since 2000-01, our funding for core business (including remuneration updates) has grown at a compound annual rate of about 2%^[23] - see Figure 29. Over the same period, the customer base and resulting filing obligations have increased at compound annual rates of 5%^[24] and 3% respectively. We have managed core business growth within our funding constraints while continuing to deliver high output performance each year.

Our sustained focus on organisational performance reflects our thinking and planning processes. We have been able to deliver an increased level of service and customer satisfaction - see customer satisfaction - over a period of significant change, while our real baseline funding remains lower than it was 15 years ago. This shows we have achieved ongoing efficiency improvements. We will also continue to look for investment opportunities to improve outcomes for our customers and enhance future organisational performance.

Figure 29 -
Vote Revenue budget (actual and CPI-adjusted)

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Figure 30 -
Workload indicators

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OECD comparison of collection costs

International comparisons^[25] also show the relative efficiency of New Zealand's tax system - see Figure 31. The comparisons should be treated cautiously because many factors such as improved compliance, macroeconomic changes and differences between tax systems, can influence the cost of collection. New Zealand's collection costs are in line with other countries with similar tax systems and have also been declining over recent years.

Figure 31 -
Cost of collection as a percentage of revenue for selected OECD countries

Reducing customer compliance costs

Some areas of our business carry compliance costs for our customers. We have given a high priority to delivering convenient cost-effective services to help reduce these compliance costs over time. We are developing administrative systems that will bring efficiency gains to both our customers and Inland Revenue, especially through enhancements to electronic services that make it easier for our customers to interact with us.

We are working to reduce compliance costs in areas that affect businesses and the work done by tax advisors, for example:

• rewriting the tax acts in clear, plain language
• streamlining the payment times for GST and provisional tax for a large group of our customers with small and medium sized businesses (for most customers this will start on 1 April 2008)
• reducing reporting costs by planning for the adoption of common reporting standards, such as standard business reporting^[26]
• progressing the government's Business Tax Review, to give better incentives for productivity and improved competitiveness, particularly with Australia.

New Zealand is well positioned compared to other countries. Recent World Bank research^[27] into the economies of 175 countries found New Zealand was ranked:

• second in terms of overall ease of doing business (after Singapore)
• tenth in the world in terms of ease of paying tax (ahead of Australia, Canada, the United Kingdom and United States).

Research and data from the OECD also showed that we have:

• the third lowest tax wedge^[28] in the OECD (ahead of Australia, Canada, the United Kingdom and United States)
• a tax burden consistent with other developed countries in the OECD^[29].

²³ The growth excludes additional funding for delivering new government initiatives and is inflation-adjusted (Consumer Price Index).

²⁴ Consisting of tax customers 4%, child support customers 6% and student loan customers 7%.

²⁵ OECD, Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2006), February 2007, p101.

²⁶ This provides a common language to communicate business and financial data, which has major benefits for the preparation, analysis and communication of business information.

²⁷ World Bank, Doing Business 2007 database, available at www.doingbusiness.org Accessed: March 2007. The Doing Business indicators show the cost of doing business by identifying specific regulations that enhance or constrain business investment, productivity, and growth.

²⁸ The tax wedge is the difference between total labour costs to the employer, and the corresponding net take-home pay for single workers without children at average earning levels in 2006. OECD, Taxing Wages 2005/2006: 2006 Edition, February 2007.

²⁹ OECD, Revenue Statistics 1965-2005, 2006 Edition, October 2006.

Other sections in: Part three - Key strategies and charter report

Realignment of our operational areas | Corporate strategies | Paying tax and receiving entitlements | Developing our people and infrastructure | An effective and efficient organisation | Inland Revenue's Charter | 

Date published: 23 Oct 2007

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