Annual Report 2008: Part three - Key strategies
Efficiency and effectiveness
Measuring organisational efficiency
Inland Revenue is mid-way through a three-year work programme to improve our ability to assess efficiency and effectiveness. The research aims to find the best means of measuring the impact that our interventions have on achieving intermediate outcomes and on 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. The programme was agreed with the Cabinet Committee on Expenditure and Administration.
Early results from research on compliance behaviour
During the programme we report annually to the Cabinet Committee on Expenditure and Administration on customers' filing and paying compliance behaviour. The results show customer compliance with filing and paying obligations between 2001 and 2005:
- 78% of customers (representing 97% of assessment value) complied with most of their filing and paying obligations
- 8% (2% of assessment value) had a moderate level of compliance issues
- 14% (1% of assessment value) showed poor levels of compliance.
These results are from 2.7 million customers who had some choice about compliance. It excludes the 1.6 million customers who are employees and have tax deducted through PAYE.
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.
Since 2000-01, our funding for core business (including remuneration updates) has grown at a compound annual rate of about 3% - see figure 21. Over the same period, the customer base has increased at a compound annual rate of 6%. We have managed both core and new business growth within our funding constraints while continuing to deliver high levels of output performance and customer satisfaction, over this period of significant change.
Figure 21 -
Vote Revenue Budget (actual and CPI adjusted)
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Figure 22 -
Change in our customer base
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OECD comparison of collection costs
International comparisons also show the relative efficiency of New Zealand's tax system - see figure 23. 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.
| 2003 | 2004 | |
|---|---|---|
| Cost of collection as a % of revenue | ||
| Japan | 1.67 | 1.58 |
| Canada | 1.33 | 1.17 |
| Australia | 1.05 | 1.05 |
| Singapore | 1.01 | 1.02 |
| United Kingdom | 1.04 | 0.97 |
| Ireland | 0.91 | 0.86 |
| New Zealand | 0.83 | 0.81 |
| United States of America | 0.57 | 0.56 |
Reducing customer compliance costs
Our business carries some compliance costs for our customers. We are developing systems that will optimise organisational efficiency and reduce compliance costs over time. We will do this by making the best use of technology, maximising the use of electronic services and streamlining our processes.
We have worked to reduce compliance costs in areas that affect businesses and the work done by tax advisors, for example:
- the rewritten Income Tax Act which was enacted in October 2007. The purpose of rewriting the Act was to produce income tax law that is clear, written in plain language and is structurally consistent
- we introduced the grace periods changes. Customers have been given a clean slate and are eligible for one late payment grace period every two years
- the changes in the business tax reform package were implemented from 1 April 2008.
Recent World Bank research[21] into the economies of 178 countries ranked New Zealand:
- second in terms of overall ease of doing business (behind Singapore)
- third in the world in ease of starting a business
- ninth 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[22] in the OECD (ahead of Australia, Canada, the United Kingdom and United States of America).
Evaluation work programme
Our evaluation work programme measures the longer term impacts of selected programmes arising from government or Inland Revenue priorities. Evaluation projects test the results of programmes against intended outcomes and help increase our understanding of factors that contribute to the success of interventions in improving compliance, or participation in social policy programmes.
Major evaluation projects we are working on include:
- KiwiSaver - the evaluation is being carried out over several years with the Ministry of Economic Development and Housing New Zealand Corporation.
- Working for Families Tax Credits - this evaluation is in its third year and is a joint evaluation with the Ministry of Social Development.
- R&D tax credits - this is a joint evaluation with the Ministry of Research, Science and Technology. In 2007-08 our role in this evaluation was advisory.
- Child support - we are evaluating the pilot programme of providing parenting information for newly separated parents in relation to the compliance of non-custodial parents with their payment obligations.
We are also doing an international comparison of best practice for public rulings and scoping an evaluation of initiatives, such as outbound calling to targeted customers.
Date published: 15 May 2009
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