IRD's hired muscle

File photo

In a rare move, the Inland Revenue Department is using debt collectors to gather outstanding tax and student-loan payments.

It's the first time the taxman has resorted to hiring external debt-collection agencies since a study on collecting child-support payments in 1996, and accountants say the move is borne out of growing pressure to increase the tax take coupled with shrinking staff resources.

IRD is running a trial from this month until November using two debt-collection companies to chase 15,000 domestic tax debtors and 500 Australian-based student-loan defaulters.

This week the taxpayers have been sent a letter advising them that they have 10 working days to pay up or their details will be sent to the debt collectors.

IRD's tough approach in recent months includes texting and calling debtors to ask how they plan to meet their obligations.

"This study is seen as one of the next steps in better understanding how efficient key aspects of our debt-collection practices, processes and technology are when compared with the private sector," a department spokesperson said.

Craig Macalister, tax director of the New Zealand Institute of Chartered Accountants, said revenue debts were growing and IRD was exploring options for maximising recovery.

He said the IRD was often too slow to act and left small amounts uncollected too long so that they grew into large amounts, and was inconsistent in its approach.

The Tax Agents Institute of New Zealand had been given a heads-up about the trial, said tax working group spokesman Terry Baucher. "We have reservations about [outsourcing tax collection] because this is really a function of government."

Agents had been assured there were plenty of safeguards around it, such as doing police and tax checks on all the debt-collection agency staff involved.

But some of the debts were not necessarily proven, particularly in the case of GST and PAYE default assessments.

"It's small businesses that are going to bear the brunt of this," Baucher said.

Kumeu tax agent Denise Maffey believed the move was to do with an out-of-control debt problem and staffing cutbacks. "There is no doubt in my mind that debt collection is cheaper than in-house."

The department should work through tax agents rather than approaching clients directly, she said. "They've got a protocol in place where they're supposed to talk to us first. They frequently don't."

The Public Service Association said this week that nearly 200 jobs would be slashed from provincial IRD offices as the organisation undergoes a national restructure.