Employee entitlements that Inland Revenue expects to be settled within 12 months of balance date are measured at nominal value based on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave and time off in lieu earned up to but not yet taken at balance date, and retiring and long-service leave entitlements expected to be settled within 12 months.
Inland Revenue recognises a liability for sick leave to the extent that absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent that Inland Revenue anticipates it will be used by staff to cover those future absences.
Inland Revenue recognises a liability and an expense for bonuses where it is contractually obliged to pay them, or where a past practice has created a constructive obligation and a reliable estimate of the obligation can be made.
Other provisions include an allowance to meet the requirements of the Holidays Act 2003 for former Inland Revenue employees and other operational employee matters.
Employee entitlements that are payable beyond 12 months such as long-service leave and retiring leave, have been calculated on an actuarial basis.
|Actual 2021 ($000)||Current and non-current liabilities||Actual 2022 ($000)||Unaudited Budget 2022 ($000)|
|Current liabilities - exchange transactions|
|$13,861||Accrued salaries and wages||$13,172||$7,957|
|$6||Time off in lieu||$6||$6|
|$83,462||Total current liabilities - exchange transactions||$55,597||$55,570|
|Non-current liabilities - exchange transactions|
|$25,370||Total non-current liabilities - exchange transactions||$21,655||$31,580|
|$108,832||Total employee entitlements||$77,252||$87,150|
Provisions for employee entitlements were $9.898 million lower than budget, mainly due to a lower amount of transformation-related termination benefits being necessary as staff could be retained in other positions, a reversal of long-service leave and retiring leave for employees who have left Inland Revenue, and macroeconomic changes to valuation assumptions for long-service leave and retiring leave.
Termination benefits are payable when an employee's employment contract is terminated before their normal retirement or when an employee accepts voluntary redundancy in exchange for these benefits. Inland Revenue recognises the expense when it is demonstrably committed to either terminate the employment of current employees, according to a detailed formal plan without the possibility of withdrawal, or as a result of an offer for voluntary redundancy.
Termination benefits to be settled within 12 months are reported at the amount expected to be paid. Otherwise, they are reported as the present value of the estimated future cash outflows, where applicable.
Movements in the provisions for termination benefits and other provisions are as follows.
|Movement||Termination benefits ($000)||Other provisions ($000)||Total ($000)|
|Opening balance as at 1 July 2021||$27,163||$5,378||$32,541|
|Additional provisions made||$1,039||$(1,492)||$(453)|
|Closing balance as at 30 June 2022||$4,261||$1,439||$5,700|
|Opening balance as at 1 July 2020||$12,070||$4,292||$16,362|
|Additional provisions made||$18,103||$1,366||$19,469|
|Closing balance as at 30 June 2021||$27,163||$5,378||$32,541|
The actuarial calculations for long-service leave and retiring leave liabilities are based on:
- employee contractual entitlements
- years of service accrued to balance date and years remaining to entitlement
- the present value of the estimated future cash outflows using an applicable discount rate and salary inflation rate.
Sick leave, annual leave and vested long-service leave are classified as a current liability. Non-vested long-service leave and retiring leave liabilities expected to be settled within 12 months of balance date are also classified as a current liability. All other long-service leave and retiring leave is classified as a non-current liability.
The present value of retiring and long-service leave obligations depends on a number of factors that are determined on an actuarial basis by an independent actuary. Key assumptions used in calculating liabilities are the discount rate and salary inflation. Any changes in these assumptions will impact the carrying amount of the liabilities.
The discount rates used by the independent actuary for the retiring and long-service leave valuations are based on the Treasury published forward rates at 30 June 2022. The forward rates are derived from New Zealand government bonds. The long-term salary inflation assumption is based on the Treasury published rates at 30 June 2022 and after obtaining advice from the independent actuary. The long-term salary inflation assumption used was 4.52% (2021: 2.49%).
COVID-19 impacts are reflected in the assumptions for discount rates and salary inflation. The net effect of these assumptions has resulted in a decrease to the liability. The following section provides a sensitivity analysis of these assumptions.
The following table shows the effect of changes in forecast discount, salary inflation and withdrawal rates on liabilities for long-service and retiring leave. Each factor is considered separately as if all other factors remained constant.
|Year and leave type||Actual ($000)||Discount rate change ($000)||Salary inflation change ($000)||Withdrawal rate change ($000)|