Briefing for the Incoming Minister of Revenue - 2005 - Part 2

Administration of tax and social support programmes

Introduction

Through our people we deliver the services that the community needs to meet their obligations and receive their entitlements.  We are a large employer, with 4,762 full-time equivalents in 17 cities and towns around New Zealand.  Over the past three years we have worked hard to develop the skills of our people, particularly their tax technical and leadership skills.  In the 2004 staff climate survey, our people showed strong support for our strategic direction and our approach. 

The tax administration continues to enjoy high levels of community confidence, as shown by strong revenue flows and high levels of customer satisfaction with our services.  As at 30 June 2005, 85% of customers rated our services as good or very good.  We have maintained this level of confidence in the face of a continually changing environment, which includes a continued growth in the customer base.  However, there are a number of challenges that we still need to address. 

The key issues

We have four challenges:

• The department is currently implementing a full programme of initiatives, which would need to be reprioritised if we were required to implement any new initiatives
• The continuing growth in the customer base and community expectations is putting pressure on our ability to manage the annual workloads
• Pressures on the department's infrastructure, particularly our information technology systems and people capability needs to address changes to policy or new business.
• Addressing compliance issues, arising from the growth in customer base and demonstrable shifts in customer behaviour in response to current policy setting.

Status of the operational work programme

Before this year's general election, we had a full operational work programme which included the proposals announced in Budget 2005.^[27] In the medium term, this puts considerable pressure on our ability to develop and implement the operational work programme in an integrated way. 

Table 2 sets out the major features^[28] of the operational work programme in terms of the development of the administrative processes required to implement announced policy initiatives.  This programme needs to be revised in accordance with any changes in government policy or priorities.  For example, any new initiatives would require reprioritising the current operational work programme.

Table 2- Major features of the operational design work programme to June 2007

Period	Major work and initiatives to be implemented
June 2005 to December 2005	* Initiate project for the design and development of the proposed KiwiSaver programme * Initiate project for the design and implementation of the proposed treatment of the collective investment vehicles * Implementation of the extended paid parental leave for self-employed people.
December 2005 to June 2006	* Introduction of In-work Payment (IWP) * Initiate project for the design and  development of the proposed carbon tax * Implement discount for early payment of tax in first year for small- and medium-sized enterprises * Develop a B2B solution to improve Companies' Registration information * Implement imaging technology to reduce manual processing, including an electronic document storage and retrieval (EDSR) system
June 2006 to December 2006	* Plan for the proposed alignment of the provisional tax for GST and provisional tax for small- and medium-sized enterprises (subject to legislation) * Design and implement initiatives for the reviewed IRD number evidential requirements * Implement B2B solution to improve companies' registration information
December 2006 to June 2007	* Implement proposed carbon tax (1 April 2007) * Implement proposed KiwiSaver programme (1 April 2007) * Implement changes to policy for the treatment of the collective investment vehicles

Through to June 2007, the department has a very busy schedule in designing and implementing the operational and technology-based systems for planned legislative changes.  The ongoing implementation of the Working for Families package of reforms (particularly the development of the In-work Payment), and the design of administrative processes and systems for the proposed KiwiSaver and the carbon tax are set out below.

Working for Families

Phase two of the implementation of the Working for Families package of reform is currently under way, with the largest component being the introduction of the In-work payment to replace the current child tax credit.  The In-work payment will become operational from 1 April 2006.  The ongoing work effort required to implement the Working for Families reforms is considerable, requiring:

• significant system changes needed to support the various programmes
• considerable growth in customer contacts across the department's functions
• working closely with the Ministry of Social Development to ensure that customers receive a seamless service across both agencies.

This work will continue through to 1 April 2007, with the introduction of further increases in family support rates (as part of phase three of Working for Families package).

Paid parental leave

We are continuing to implement the changes to extend the paid parental leave scheme to cover people who are self-employed.  The changes are effective from December 2005.

KiwiSaver

The proposed KiwiSaver was announced in Budget 2005 to encourage a change in the savings behaviour of individuals.  As it was envisaged, Inland Revenue is to be the central administrator of KiwiSaver.  The fundamentals of the design of KiwiSaver were approved by the former government.  However, we (and other agencies) are conducting an ongoing process of detailed design and consultation with key stakeholders.  As such, the final detailed design of the KiwiSaver scheme is yet to be established.

Carbon tax

The department has started work on the design of the proposed carbon tax (as announced in Budget 2005).  The proposed carbon tax is expected to become operational on 1 April 2007.

Growth in customer base

The department is facing pressures from the continued growth in revenue assessed (Table 3) and the customer base^[29] (Table 4), which are causing workload management issues across all of our service-based functions. 

Table 3- Growth in revenue assessed

Tax type	30 June 2002 $ billion	30 June 2003 $ billion	30 June 2004 $ billion	30 June 2005 $ billion
Direct taxation	$24.557	$27.251	$29.178	$32.826
Indirect taxation	$6.822	$7.720	$8.819	$9.220
Total taxation	$31.379	$34.971	$37.997	$42.046

Table 4 - Growth in customer base

Customer type	June 2001 million	June 2004 million	% growth
Social support	0.737	0.872	18%
Taxpayers	5.303	5.769	9%

The growth in the customer base is the result of:

• social support programme changes that broadened eligibility for entitlements (such as Working for Families) and the increasing number of student loan borrowers.  There is also significant fluidity in the base, with people moving in and out of work and changing family circumstances.
• economic activity, which is supporting the growing number of businesses.  Illustrating this growth, Figure 12 shows the increase in the number of small and medium sized enterprises over the past five years.  These businesses generate considerable numbers of contacts in any given year.

Figure 12 - Growth in small and medium sized enterprises

Click on image above to get a full size view

Source: Statistics New Zealand

Generally speaking, the growth in our customer base is generating an increased number of interactions that we have with our customers and this is putting considerable pressure on our ability to deliver our services.  The drivers of these pressures include:

• the generation of approximately 7.7 million forms and statements per year, which create, sometimes unnecessary, customer contacts.  We need to redesign some of our processes to get benefits for government and taxpayers but, in doing this, this will incur costs in information technology and implementation.
• the wide range of interactions we have with various customer groups, for example:
  • the nature and complexity of the query, and the frequency of contacts
   
  • the range of channels available for customers to contact us, including traditional and electronic delivery channels
• our ability to manage seasonal workloads, especially the peak period for telephone contacts, which is generally the last quarter of the financial year.  Table 5 shows the number of peak and non-peak days^[30] planned for the last quarter of 2004-05.

Table 5 - Peak and non-peak days planned for last quarter 2004-05

	Days planned	Days actual
Days with more than 17,500 calls accepted	40	54
Days with less than 17,500 calls accepted	36	22

In addressing the growth pressures, we have taken a broad-based approach by:

• managing workloads through our business-as-usual processes with the appropriate reprioritisation of resources when required (particularly around peak periods for customer contacts)
• seeking more cost-efficient options for the processing of information and the delivery of our services that make it easier for people to interact with us electronically.
• training our people, and recruiting people with the right skills and knowledge required to deliver our services.

Infrastructure

In this section, we look at three broad areas:

• our information technology systems
• developing our people capability
• accommodation issues.

Ability to make information technology system changes

The department operates a large information technology infrastructure to support the department's various functions.  The main component of our technology infrastructure is FIRST (Future Inland Revenue System Technology), which was introduced in 1992. 

At that time, the department's role was purely tax administration and FIRST was designed accordingly.  Since then the department's responsibilities have been significantly expanded to include many social policy activities including family assistance, child support, and student loans.  The technology support for these activities has been integrated into FIRST, creating a more complex system than was originally designed.  This complexity continues to increase as our systems are modified to incorporate policy changes, resulting in both increased cost and time to implement further changes.

Over the past 12 months there have been indications that our systems are reaching a "tipping point", where consideration will need to be given to replace systems rather than make further changes to existing systems.  This is a particular concern for the administration of the student loans system.

We also have a full development programme implementing business-as-usual changes required to maintain the integrity of business processes, as well as development work to implement already initiated policy initiatives.  Therefore, making significant changes to the systems will require Inland Revenue to reprioritise its development programme to ensure that priority changes can be made in a timely manner.

Benchmarking (completed in 2003-04) against a number of international tax authorities found that we have a highly-educated, stable technology workforce, and that we efficiently use our hardware and processing power and storage.  However, it also confirmed that our "time to market" for new products and services was at the high-end of industry standards.

Delivering efficient electronic products and services

We are recognised nationally as being a leading example in the delivery of online services.  Our focus on designing and delivering services through electronic channels is consistent with the goals of the e-Government programme.  The provision of services electronically provides people with easy and convenient access to our services and, therefore, reduces the need for people to contact us unnecessarily.  Over the past three years there has been an increase in the range of services we offer electronically as shown in Table 6.

Table 6 - Comparison of electronic services available from 2002 to 2005

Service	2002	2005
Authentication using a user ID with passwords and/or PIN	*	*
Use of third party filing software and vendors	*	*
Tax agents: client filing facilities	*	*
Tax agents: Look at Account Information service		*
Businesses: PAYE filing	*	*
Businesses: GST filing		*
Businesses: Income tax filing		*
Individuals: Income tax filing		*
Individuals: Look at Account Information service		*
Payment by internet banking	*	*
Payment by credit card		*
Online correspondence		*
35 interactive online forms		*
15 online calculators		*

The key driver of this development has been our e-enablement strategy.  Launched in 2002, this strategy initially focused on providing the most easily implemented services through electronic channels.  This approach was intended to support the E-government strategy goal for 2004 of the internet being the dominant means of enabling ready access to government services.  We are currently refreshing our 2002 e-enablement strategy to assess our current position and to realign it in accordance with the E-government goal of: "by June 2010, the operation of government will have been transformed through its use of the Internet".  Many international revenue authorities have highlighted the importance of introducing new electronic services and transforming their business through the use of the e-channel.

One of the key challenges in this area is realising efficiency gains through the introduction of these new services.  The experience of other similar organisations suggests that new electronic services can increase operating costs.  This is because these services are in addition to, rather than replacements for, existing services.  It is not until there is significant uptake of the new services that the cost efficiencies are gained.  An OECD assessment ^[31] suggested that we are still relatively immature in terms of our uptake and marketing strategies.  We are experiencing slow but steady increases in the level of uptake, which shows that there is more scope for us to improve our marketing of these services.

However, we are experiencing an increasing number of tax agents and individuals using our Look at Account Information service to access account information.  Illustrating the extent of this growth, Table 7 shows the number of accounts accessed during three months of 2004-05.

Table 7 - Accounts accessed through our Look at Account Information service for the month

	July 2004	January 2005	July 2005
Accounts accessed by tax agents	4,677	83,578	294,783
Accounts accessed by individuals	460	17,659	57,087

Service contracts

In addition to the delivery of electronic services, during the 2004-05 year we took important steps to establish forward-looking contracts with somAccounts accessed by tax agents e of our key service providers.

During 2004-05, we signed a new seven-year mainframe services contract with EDS, which has increased our processing capacity and takes advantage of improved technology.  This provides us with a more cost-efficient service.  This is vital for our ability to meet the growing demand for our services and to secure our future business needs.

In April 2005, we signed a six-year telecommunications services outsourcing agreement with TelstraClear.  Under this agreement, TelstraClear will provide a managed service for our telecommunications needs.  The modernisation of our telecommunication network increases its business usefulness (making it flexible, cost-effective and scaleable) and provides a platform from which we can improve productivity.  The advanced functionality has the potential to allow staff to respond more quickly to customer queries and reduce call waiting times.  This will translate to improvements in our interactions with taxpayers and within Inland Revenue.

People capability

Our biggest asset is our people and we continue to make a large investment in their development.  This is vital for the department's ability to ensure the sustainability of the tax system, deliver our services today and to prepare for future challenges and service requirements. 

Given the diverse nature of our tax and social support programme work, we need to have a wide range of skills and knowledge to help us deliver our services and achieve our outcomes.  Some of the key drivers for our continued development include:

• an increasing complexity in the business environment and in the types of issues that people are asking us.  This is particularly the case in the compliance improvement areas around audit and debt collection, but also in terms of the increasing complexity being faced in our customer contacts and rulings requests.  This means that we need to continue to develop our people's technical expertise.
• the addition of new functions, such as the proposed KiwiSaver and the carbon tax, also means that we need to develop a wider range of new skills that are not primarily based on taxation knowledge.

We are addressing these requirements through ongoing training (for example our technical development programmes) but often the only response is to recruit new people who have the required skills.  However, we are facing pressure in our ability to recruit people with the appropriate skills, particularly given the tight labour market that is seeking the same skills across the public and private sectors. 

We also face challenges in funding the level of remuneration required to attract and retain people with the skills we need.  This issue is particularly relevant because:

• although there is a low turnover rate of 10.2% across the department, we are concern about particular areas (predominantly tax technical areas) where turnover is higher than average and it is harder to recruit and train people in these areas
• the level of competition in the labour market for specialist staff (for example tax professionals and information technology specialists).

Part of our approach to addressing this issue includes providing a competitive level of remuneration (commensurate with the public sector), access to appropriate training and a stimulating work environment to secure the long-term sustainability of our workforce. 

Accommodation issues

We are facing pressure in our ability to accommodate our people.  Key drivers of this pressure arise from recruitment of staff to address the growth in the customer base and recruitment to address new business.  We are also likely to experience increases in rental expenditure as currently leases reach maturity and will need to be renegotiated.

^[27] KiwiSaver and the carbon tax.
^[28] This table does not include the design and implementation of the myriad of initiatives that form our business-as-usual improvement programme.
^[29] Note that the number of active entities is greater than New Zealand's population.  The reasons for this include: taxpayers remain in our system even if they are not currently resident in New Zealand (for example, the taxpayer may have an active student loan repayment obligation), and taxpayers may not have been deregistered after their deaths.
^[30]On a peak day we expect to accept more than 17,500 calls per day and on non-peak days we expect to accept less than 17,500 calls per day.
^[31]In 2004, the OECD Forum on Tax Administration Taxpayer Services sub-group surveyed the trends in revenue authorities use of new technology to deliver services.

 

Continues in "Addressing compliance issues"

 

 

 

Date published: 14 Nov 2005

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