[New Zealand] Government considers reinstating payroll subsidy as tax debt mounts

New Zealand’s Minister of Revenue has sought further advice on proposals from the accountancy industry to change the way employee tax is handled and paid to Inland Revenue, Newsroom reports.

Chartered Accountants Australia & NZ’s “two-pronged” solution to NZ’s escalating PAYE debt is to subsidise payroll intermediaries for small businesses, and amend legislation to mandate that businesses automatically transfer PAYE and other employer deductions at the time wages are paid.

Commenting on its proposal, the group’s tax leader John Cuthbertson said, “We have written to Revenue Minister Simon Watts proposing a two-pronged solution that would remove the temptation – and risk – of misusing these funds. 

“Either option could be adopted or a combination of the two to achieve the desired outcome.”

According to the latest tax office reporting, New Zealand’s tax debt has surpassed $9.5 billion, and is forecast to reach $10.5b by June 2026. 

More than half (57 per cent) is linked to the use of PAYE and GST to support business cashflow, predominately in the micro and SME sectors.

The mounting pile of overdue taxes reportedly led the tax department to escalate compliance, following a funding boost in the 2024 Budget and after a period of pandemic leniency.

Business liquidations lead the crackdown charge: Inland Revenue has applied for a greater number to reflect the Government making debt collection a priority.

Mr Cuthbertson reportedly said the data highlights a persistent structural issue, enabled by the current legislation.

“Employer deductions, particularly PAYE, are held on trust and should be paid to Inland Revenue shortly after wages are paid. However, many smaller businesses struggle to meet these obligations consistently and are using them as a short-term cashflow tool.

“While that may help in the moment, it quickly snowballs into unmanageable debt that can ultimately lead to business failure. It also creates an unfair playing field – where some businesses gain advantages by using funds that should be with Inland Revenue.”

Commenting on the group’s proposals, he said, “The first option is changing legislation to mandate that businesses automatically transfer PAYE and other employer deductions such as KiwiSaver contributions at the time wages are paid. Currently, businesses are required to pay at set dates each month, which is leading to misuse of tax deductions.

“The second option is to revisit subsiding payroll intermediaries for small businesses. This would look like a small subsidy for qualifying small businesses not already using a payroll provider, to help them into this service for a fixed term.”

Payroll subsidies remained in place from 2006 to 2020. They were introduced to encourage small businesses to outsource their PAYE responsibilities to approved listed intermediaries.

Revenue Minister Simon Watts stated that the subsidy was discontinued after concerns it favoured a single model of payroll service, that risked distorting employers’ choices between different products.

He said, “The end goal being that most would hopefully realise the benefits of using a payroll provider and permanently switch/retain their services. 

“Given the ballooning size of tax debt, investing a small amount in a temporary subsidy for say one year, should be worth the investment.”

Mr Cuthbertson added that it makes “far more sense” to stop tax debt arising in the first place instead of letting it accumulate then trying to collect it. As an additional benefit, the department would have tax collection resources to reallocate.

In response to Newsroom’s questions, Mr Watts reportedly said that reducing tax debt is a priority, as shown by the funding boost Inland Revenue has received over the past three Budgets to strengthen and support its processes in this area.

“The Government is open to policy ideas that could further reduce tax debt. The proposals put forward by [Chartered Accountants Australia & New Zealand] warrant further consideration. 

“I have therefore asked officials to engage with CAANZ and report back with advice on whether these proposals are likely to have a material impact on reducing tax debt,” he said.

Source: Newsroom

(Quotes via original reporting)

New Zealand’s Minister of Revenue has sought further advice on proposals from the accountancy industry to change the way employee tax is handled and paid to Inland Revenue, Newsroom reports.

Chartered Accountants Australia & NZ’s “two-pronged” solution to NZ’s escalating PAYE debt is to subsidise payroll intermediaries for small businesses, and amend legislation to mandate that businesses automatically transfer PAYE and other employer deductions at the time wages are paid.

Commenting on its proposal, the group’s tax leader John Cuthbertson said, “We have written to Revenue Minister Simon Watts proposing a two-pronged solution that would remove the temptation – and risk – of misusing these funds. 

“Either option could be adopted or a combination of the two to achieve the desired outcome.”

According to the latest tax office reporting, New Zealand’s tax debt has surpassed $9.5 billion, and is forecast to reach $10.5b by June 2026. 

More than half (57 per cent) is linked to the use of PAYE and GST to support business cashflow, predominately in the micro and SME sectors.

The mounting pile of overdue taxes reportedly led the tax department to escalate compliance, following a funding boost in the 2024 Budget and after a period of pandemic leniency.

Business liquidations lead the crackdown charge: Inland Revenue has applied for a greater number to reflect the Government making debt collection a priority.

Mr Cuthbertson reportedly said the data highlights a persistent structural issue, enabled by the current legislation.

“Employer deductions, particularly PAYE, are held on trust and should be paid to Inland Revenue shortly after wages are paid. However, many smaller businesses struggle to meet these obligations consistently and are using them as a short-term cashflow tool.

“While that may help in the moment, it quickly snowballs into unmanageable debt that can ultimately lead to business failure. It also creates an unfair playing field – where some businesses gain advantages by using funds that should be with Inland Revenue.”

Commenting on the group’s proposals, he said, “The first option is changing legislation to mandate that businesses automatically transfer PAYE and other employer deductions such as KiwiSaver contributions at the time wages are paid. Currently, businesses are required to pay at set dates each month, which is leading to misuse of tax deductions.

“The second option is to revisit subsiding payroll intermediaries for small businesses. This would look like a small subsidy for qualifying small businesses not already using a payroll provider, to help them into this service for a fixed term.”

Payroll subsidies remained in place from 2006 to 2020. They were introduced to encourage small businesses to outsource their PAYE responsibilities to approved listed intermediaries.

Revenue Minister Simon Watts stated that the subsidy was discontinued after concerns it favoured a single model of payroll service, that risked distorting employers’ choices between different products.

He said, “The end goal being that most would hopefully realise the benefits of using a payroll provider and permanently switch/retain their services. 

“Given the ballooning size of tax debt, investing a small amount in a temporary subsidy for say one year, should be worth the investment.”

Mr Cuthbertson added that it makes “far more sense” to stop tax debt arising in the first place instead of letting it accumulate then trying to collect it. As an additional benefit, the department would have tax collection resources to reallocate.

In response to Newsroom’s questions, Mr Watts reportedly said that reducing tax debt is a priority, as shown by the funding boost Inland Revenue has received over the past three Budgets to strengthen and support its processes in this area.

“The Government is open to policy ideas that could further reduce tax debt. The proposals put forward by [Chartered Accountants Australia & New Zealand] warrant further consideration. 

“I have therefore asked officials to engage with CAANZ and report back with advice on whether these proposals are likely to have a material impact on reducing tax debt,” he said.

Source: Newsroom

(Quotes via original reporting)