Foreign Affairs will pay tax for staff

Foreign Affairs is to get a Budget boost to help it to pay tax on hefty allowances paid to overseas diplomats and staff, after Inland Revenue ruled they were not tax-free.

A Foreign Affairs spokesman said yesterday that a declaration had been sought from the IRD on the allowances, paid on top of salaries, to 215 staff.

The allowances include: Compensation for higher living costs, relocation costs, accommodation assistance, some medical costs and some education costs for dependent children.

Tax was being paid on the allowances this financial year as a result of the recent declaration, the spokesman said.

He would not say how much was involved, but it is understood that will become clear in today's Budget, which will provide the ministry with extra funds to ensure staff are not financially disadvantaged by the change.

Foreign Affairs would not release details of the IRD ruling, which the spokesman said was "cost-neutral" to the taxpayer.

The IRD had not asked the ministry to refund it for tax not paid on the allowances in previous years, as the ministry had sought the determination itself, he said.

A spokeswoman said Foreign Affairs Minister Winston Peters had no comment.

National foreign affairs spokesman Murray McCully said: "This is just another example of a whole industry of people being employed to collect money off hapless taxpayers to give to the IRD.

"It's a huge money-go-round and unfortunately New Zealand taxpayers are paying the bill. Vast armies of grey bureaucrats are being kept not very gainfully employed as a result."

An IRD spokeswoman said the department was not able to discuss the determination.

"Government departments are taxpayers in the same way individuals and companies are, and the secrecy provisions in our legislation (section 81 of the Tax Administration Act) mean we are unable to discuss their tax affairs."

But she added: "There may be implications for other departments, and Inland Revenue is discussing the implications with them."