Tax debt climbed to $4 billion by the end of June last year and Inland Revenue says it could more than double within the next five years.
A report into tax debt released by the Auditor General said the growth rate is more than the department can handle with its current procedures.
"[The IRD] is proposing to better understand taxpayers, provide taxpayers with improved online tools, and pilot new approaches designed to enhance its processes for collecting tax debt," Auditor-General Kevin Brady said in his report.
Tax expert from accountant firm PricewaterhouseCoopers, John Shewan, said the debt increase is due to a variety of factors including the current economic climate, IT systems and new programmes being introduced.
He said KiwiSaver, Working for Families and student loans have all been added to the IRD's portfolio in the past nine years.
Shewan said the amount of tax collected has increased.
"It's like running a business, isn't it? If you increase your sales, you'll get more debtors and your bad debtors will go up," he said.
In April the IRD announced 250 jobs were to go but Shewan said that has nothing to do with debt collection.
"The question is, could some of those people be re-deployed into debt collection but I can't answer that," said Shewan.
He said the debt rise is not due to poor communication and the quality of brochures online for people to fill out their own tax returns was "pretty good".
He said people who have debt with the tax department should contact the IRD and not ignore letters.
"Ignoring is not a good strategy, it comes back to bite you in the backside," said Shewan.
"It's a huge number, 41 per cent of the debt is because of penalties and interest," he said.
The report said there were 202,000 cases of tax debt at the end of June last year.
Auditor-General Kevin Brady said the department's management of tax debt was satisfactory once debt cases were assigned to officers, but the work was prioritised and low risk cases were unlikely to be assigned.
"Inland Revenue has limited information to monitor the effectiveness and efficiency of its tax debt collection work," he said.
"It was aware of how many tax debt cases it needs to manage, but it was not able to tell my staff how many tax debt cases it was actively managing."
Brady said that in his view, such information was fundamental to the way it used its resources.
"It is important that Inland Revenue is effectively and efficiently managing tax debt at any time - but even more so given the current economic climate and the pressure that the Crown faces with forecast deficits," he said.
- NZ HERALD STAFF & NZPA
See the report here
