Statement of Intent 2008-11: Part two - Managing in a changeable environment
Environment
Our environment is continually changing. With rapidly developing technology, increasing international links and changing societal expectations, we expect the fast pace of change to continue, leading to growing demands and increasing expectations for our services. We need to be able to respond quickly and effectively.
Government priorities and the continued focus on sustainability
The Government's priorities are economic transformation, families-young and old, and national identity. We play an important role in New Zealand's transformation to a high-income, knowledge-based economy by maintaining a strong tax system, a stable revenue base and tax laws that minimise compliance costs. The sound administration of our social policy responsibilities, including KiwiSaver, is critically important to many New Zealanders.
The Government is committed to promoting sustainable development and moving towards carbon neutrality in the public sector. Inland Revenue also takes part in the Government Sustainability Programme (Govt3). As one of the six core public sector agencies leading the way to achieving carbon neutrality by 2012, we are developing plans to move us towards this goal.
Policy and legislation
The New Zealand political environment and legislative agenda are influential factors affecting Inland Revenue's work. As well as collecting revenue and administering social policy programmes, Inland Revenue must also quickly accommodate Government priorities for change as they arise.
In Budget 2007, for example, the Government announced the introduction of major reforms that were to be implemented in the 200809 year. They included reduction of the company tax rate from 33% to 30%, introduction of a new research and development tax credit, and removal of caps on charitable rebates, as an incentive to increase charitable giving. The changes also included further KiwiSaver developments in the form of a new member tax credit, compulsory matching employer contributions and the associated employer tax credit. The enabling legislation for these and other measures was introduced on Budget day, 17 May 2007, with several being enacted under urgency and the remainder in December of that year. All this required a rapid operational response to ensure that the changes would be implemented in time.
To operate successfully within such an environment, Inland Revenue must be agile and flexible. Our processes and systems must be robust and reliable, yet able to support significant change quickly. We must also be capable of quickly redirecting resources to deliver new government programmes. Inland Revenue has faced very significant challenges in resourcing new initiatives in recent years.
It is also important that Inland Revenue invests resources in maintaining a capable and highly respected Policy Advice Division. The division has a major influence on government policy in the advisory role it shares with The Treasury. Further, in developing policy, the Policy Advice Division takes into account the associated operational requirements and constraints that will affect Inland Revenue's ability to implement government priorities.
Globalisation and the changing nature of business
The pace of globalisation, including changes in technology, continues to open up new opportunities for business. It also adds more complexity to determining tax liabilities. Some of the risks to the tax system include businesses being able to shift tax liability from New Zealand, increased use of technology to shift functions off shore and the transfer of intangibles, such as intellectual property, to overseas entities.
New Zealand is more vulnerable than many other countries because we have a small, open economy. Because of the international nature of compliance risks, we need to work closely with international tax administrations and organisations to respond to those risks. We continue to identify and respond to emerging issues and ensure we have a strong legislative framework to maintain the integrity of our tax system.
As part of New Zealand's regional responsibilities, Inland Revenue continues to support the enhancement of tax administrations in Pacific region countries (for example Niue, Samoa and the Solomon Islands).
Our changing customer base and customer expectations
We are seeing greater diversity in our customers arising from our expanding responsibilities and changing demographics.3 As a result, we are engaging with more people, facing an increased demand for our services and some customer relationships have grown more complex. In future, these will influence customer expectations and affect the way we design and deliver services. We also recognise we have a life-long relationship with our customers.
Our approaches to addressing these issues include simplifying processes to reduce the need for customers to access our services, and improving the range and availability of e-services, while still providing services through traditional channels.
The state sector environment
Government's policy focus and increasing expectations for organisational performance have a significant impact on our work. Development Goals for the State Services is a useful framework for planning and for aligning our efforts with those of other agencies-see Figure 1.
Implementing government initiatives
KiwiSaver
KiwiSaver is a long-term savings initiative to make it easy for New Zealanders to save for their future. We collect employee and employer contributions and forward them on to private sector providers for investment.
We have designed the systems and processes and developed the capability to implement compulsory employer contributions and employer tax credits (which started on 1 April 2008) and the payment of member tax credits (which start from 1 July 2008). These KiwiSaver elements were announced as part of Budget 2007.
Business Tax Review
The business tax review sought ways to ensure that the tax system helps New Zealand businesses increase productivity and improves international competitiveness. In this regard it supports Inland Revenue's primary outcome of improving the economic and social wellbeing of New Zealanders.
Two key tax changes for businesses came into effect at the start of the 200809 income tax year. The changes are part of a package of improvements for New Zealand businesses resulting from the 2006 business tax review. They are:
- a cut in the company tax rate from 33% to 30%, for all companies and some savings vehicles. A number of other changes resulting from the reduction affect the payment of provisional tax, imputation and formulas and other rates connected to the company tax rate.
- a 15% tax credit for businesses doing eligible research and development (R&D). Businesses will claim the tax credit through their normal tax return process. The R&D must meet three key eligibility tests relating to the business itself, the activity and the expenditure.
Over the next three years we will work with businesses, tax professionals and other key business and government stakeholders to implement the changes. In particular, we will:
- ensure eligible businesses can claim the R&D tax credit
- manage the introduction of the company tax rate reduction and consequential changes
- minimise risks to the integrity of the tax system
- inform customers about the changes, how they are affected and what they need to do.
3 For example, KiwiSaver increased the number of people and the range of issues we need to engage with them on. We also need to address issues around New Zealand's increasing ethnic diversity.
Date published: 30 Jun 2008
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