Inland Revenue’s $9.5 billion debt problem needs more than enforcement

By Josh Taylor

The question is no longer whether New Zealand has a tax debt problem. The question is how we solve it.

As of September 2025, Inland Revenue (IR) was carrying $9.5 billion in overdue tax and entitlement debt, up from $7.9 billion just 15 months earlier. That's a growing fiscal challenge for New Zealand and one that policymakers are increasingly being forced to confront.

The Government's response has been predictable: more funding for compliance, greater focus on debt collection and more pressure on taxpayers who owe money to IR.

After all, every dollar of unpaid tax is a dollar unavailable for public services.

Inland Revenue’s $9.5 billion debt problem needs more than enforcement

But amid the discussions about enforcement, an important debt recovery initiative has slipped under the radar.

In March this year, IR announced a pilot programme allowing eligible taxpayers to use tax pooling to clear business income tax debt for 2023 and 2024 years at reduced cost and without penalties. The savings for Kiwi businesses can be substantial.

Yet outside specialist tax circles, the announcement has attracted little attention.

The pilot was unveiled into an already crowded news cycle dominated by economic uncertainty. Against that backdrop, a technical tax debt initiative was never likely to generate widespread discussion.

In fact, conversations across the accounting profession suggest some advisers remain unaware the pilot exists. That's surprising given accountants are often the first port of call for businesses trying to manage tax debt. If awareness within the advisory community is patchy, there is every chance awareness among eligible taxpayers is even lower.

And that lack of awareness means taxpayers are paying more to settle their tax debts.

IR could and should do more to promote the pilot scheme as part of their own debt recovery initiatives.

Not all tax debt is created equal

IR data shows there is $1.2 billion in income tax debt across these two tax periods. They already know where much of the debt sits. The real challenge is converting that debt into actual collections.

The easiest debt to collect is the most recent debt and we have seen a significant rise in unpaid business income tax.

The pilot programme targets this tax. It does not excuse the tax that still needs to be paid, but recognises a reality every accountant, tax adviser and business owner understands: not all tax debt is created equal.

IR should continue to aggressively pursue those who deliberately avoid their obligations. But a significant proportion of debt exists because businesses encounter cash flow pressures, economic downturns or periods of genuine financial stress. Recent years have provided no shortage of those challenges.

For some taxpayers, what began as a short-term problem became a long-term one. Debt accumulated. Interest compounded. The path back to compliance became increasingly difficult.

That doesn't excuse non-payment. But it makes it understandable.

Tax debt isn't a choice between being tough or being soft. The goal is maximising voluntary compliance while maximising long-term revenue collection.

A viable business that resolves its historic obligations continues paying GST, PAYE and income tax for years to come. The business survives, employees keep their jobs and IR recovers outstanding revenue. Everybody wins.

Compare that with the alternative. A taxpayer trapped beneath a growing debt burden may eventually become insolvent. Recovery prospects deteriorate and the Government receives less revenue.

The debt pilot is not a concession but a collection tool.

Its purpose is not to reduce tax obligations. Its purpose is to improve the likelihood that those obligations are paid.

A tool is useless if nobody knows it exists

What is not clear is how actively the initiative is being incorporated into IR’s broader debt recovery efforts.

For a programme intended to help resolve historic tax debt, it does not seem to be featuring prominently in IR’s debt recovery conversations. Many advisers report that debt collection processes appear largely unchanged since the pilot's introduction, while some accountants are only now learning that the pilot exists.

If advisers don’t know about the programme, how many eligible taxpayers do?

A debt recovery tool can only be effective if the people who could benefit from it know where to find it.

With a debt book approaching $10 billion, New Zealand can not afford for an effective recovery tool to go unnoticed.

Pathways, not just pressure

As IR continues to grapple with one of the largest debt books in its history, the conversation should extend beyond enforcement. Strong compliance activity will always have a place, particularly where taxpayers are deliberately avoiding their responsibilities.

But successful debt recovery requires more than pressure. It requires practical pathways back to compliance.

The debt pilot won’t solve IR’s $9.5 billion problem on its own. But if it converts overdue debt into collected revenue it deserves far more attention than it has received.

After all, the measure of success is not how much debt IR records. It's how much debt IR recovers.

Josh Taylor is the co-founder of Tax Traders, New Zealand’s leading tax pooling provider. This article appeared in The Post.