Museum-grade technology restricts IRD

All is far from well with the Inland Revenue Department, writes Labour's revenue spokesman, David Clark.

I'm not often given to being in wild agreement with Prime Minister John Key, but he said something earlier this year that I thought was absolutely on the button.

He was speaking about the Inland Revenue Department (IRD), and he said "you don't want to be in a position where Parliament is held hostage to a lack of technology". What was he on about?

Well, he was referring to IRD's information technology abilities, or lack thereof.

Put plainly and simply: all is not well in the world of tax.

The Inland Revenue Department is a department under pressure.

Recent evidence shows it is struggling to keep up. At last count, it had more than one million unprocessed returns; it has about $7 billion in outstanding tax not yet collected; 70,000 calls went unanswered in the two weeks prior to the July GST filing period; and voluntary compliance is dropping.

It is no wonder customer satisfaction surveys show taxpayers are less happy than they used to be with the service at IRD.

Call centre workers in the department's Wellington base are also voting with their feet; turnover is about 34%. They quickly grow tired of the preventable frustrations of a general public who expect better from their tax department.

The Minister of Revenue, Peter Dunne, has been aware the system needed upgrading for many many years. Built in 1992, it predates Google and is 10 years older than Facebook. Collection of our taxes is dependent upon museum-grade technology. Those who have worked there say the system is held together with adhesive tape.

The department is rumoured to have spent $30 million on consultants, but is unable to yet provide a credible plan and timeline for replacing the system.

So what to do?

My challenge as revenue spokesperson is to keep banging the drum for change. Hence this article. The prime minister was right to point out that Parliament should not be held hostage to a lack of technology. But it is being held hostage.

Or at least it would be if Parliament were to vote for a significant change to the tax system.

The IRD hasn't been much challenged by National's changes; there have been some simple tweaks in the rates so Mr Key could deliver tax cuts to those on high incomes while those on low incomes got nothing. Unfair, for sure, but not too hard for the IRD system to handle.

However, should Labour be elected to office two years from now, then there will be significant change, in the form of a Capital Gains Tax (CGT), the design of which will see wealthier folk paying, on average, a little more.

But that isn't the real point of a CGT. The real point is to ensure that a dollar invested in a house or farm is treated equally to a dollar invested in, say, manufacturing. At present, the tax system subsidises house and farm investment which is why we have price bubbles that see young farmers and young homeowners alike shut out of the market and manufacturing struggling to get enough investment.

The question is, can IRD handle that change should Parliament pass it? Maybe not.

If it cannot, we have a constitutional issue of consequence. In the meantime, resources in the tax department are stretched. More and more mistakes are being made.

In the past year, Inland Revenue released more than 6300 people's private details in a series of privacy breaches.

Updating the IRD computer system should not be that hard. We can learn from others. After all, we are not the only country in the Western World with a tax system.

So it is beholden on Mr Dunne to take some decisions, find the time and the cash and get one of New Zealand's most critical bits of technology updated.

The next Labour-led government has some rather far-reaching plans. We want pro-growth tax reform, universal savings, tools to tackle the exchange rate, a plan for the housing crisis, policies directed at childhood poverty, a technology focus for economic development and more. We are absolutely entitled to expect this Government to keep the core state sector in a reasonable shape to deliver those changes if that is what New Zealanders decide they want.

 - Dr Clark is the MP for Dunedin North.