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The Inland Revenue Department is planning to lay off up to 250 staff.
IRD commissioner Robert Russell said that like many businesses and organisations, the department had to tighten its belt in the current recession.
With various large projects such as KiwiSaver winding down, Inland Revenue needed to review its resources and priorities, he said.
"We are cutting the cost and complexity of our business to provide better services to customers," he said.
"As we look to become a more streamlined organisation, we believe the responsible and mature thing to do is to give our people the ability to ask for voluntary redundancy if they believe it suits them."
But the union representing IRD staff said it was alarmed the department was calling staff to apply for voluntary redundancy as a result of the economic recession.
The Public Service Association (PSA) said the KiwiSaver scheme was far from slowing down as one million workers had joined the scheme in the last 21 months.
"That's more than 2000 people joining every working day and yet IRD is cutting jobs because the Government is cutting its budget," PSA national secretary Richard Wagstaff said.
IRD also paid Working for Families tax credits to more than 280,000 families, manages 530,000 individual student loans worth $8.9 billion dollars and gathered $56 billion in tax revenue in the 2007-08 financial year, he said.
"At the same time as it's cutting jobs at IRD the Government is increasing the department's workload."
"It's time the Government recognised that its cost cutting in the public sector is putting vital services at risk and taking away jobs from hard working New Zealanders who provide those vital services."
The redundancy offer to staff was likely to be made in early May.
Prime Minister John Key said yesterday as many as 18,000 more people may be unemployed than a year ago.
Just 117 jobs have been saved so far by the Government's nine-day fortnight scheme.
Mr Key said yesterday the Government promised more job-saving initiatives.
"There's quite an array of initiatives and you're going to see more announcements from us," he said.
Labour Party leader Phil Goff said the Government was breaking its word on capping the number of public service workers without cutting jobs.
"Clearly it's going to slash jobs in Inland Revenue, social welfare, health and other areas," he told reporters.
Mr Goff said he supported the nine-day fortnight and thought it should also apply to the public service.
"What's good for one surely should be good for the other."
But Mr Goff said that so far the nine-day fortnight had only saved 117 jobs.
"I welcome that...but with predictions of 60,000 jobs being lost you can see how inadequate the response is."