Total tax debt overdue to the Inland Revenue Department has increased more than $3.5 billion during the past 10 years and there are concerns the department is not keeping up with the speed at which debt is growing.

One tax agent said the IRD was cracking down on small debts but letting large ones slide.

Some debt is attracting penalties of as much as 10 per cent a month. More is likely to build up over the next two weeks - company GST payments are due on January 15 and a provisional tax instalment on the 20th.

For the four months to November, the IRD outsourced its debt collection. Two private firms were used to chase 15,000 domestic tax debtors and 500 Australian-based student-loan defaulters.


An IRD spokeswoman said the trial aimed to measure its collection methods against those of external companies. "We're still considering what the study has shown, but it will help [make] decisions about future debt collection."

She said figures on how successful the private debt collectors were compared to the department's own would not be available until later in the month.

Tax Agents Institute of New Zealand tax working group spokesman Terry Baucher said debt-collection companies dealt with one of his former clients, with a history of non-payment. "You do have to wonder how well [the IRD] manage their debt."

He said it seemed the department would crack down on small amounts owed "but perennial poor payers can close down and reopen under a different guise".

Baucher said often what was owed was mostly penalties.

In 2009, Auditor General Kevin Brady said it seemed debt owed to the IRD was growing too fast for the department to handle. Since then, debt has increased by more than $100 million. But the IRD spokeswoman said steps were taken to control it. "We introduced an early-intervention campaign to contact customers before their payment became overdue. As a result, we've seen more than $48 million in debt repaid and the number of customers filing on time has increased."

Most debt incurred a 1 per cent penalty the day after it was due, another 4 per cent at the end of the seventh day after it was due and then another 1 per cent every month. PAYE debt penalties can be charged at 10 per cent a month.

The IRD spokeswoman said extra funds allocated to the department in the 2010 Budget helped. "Last year we collected $115.3 million of debt, exceeding our target of $100 million, despite challenges faced as a result of the Christchurch earthquakes."


She said a campaign to target customers with tax to pay via text had been successful. "Half of those who received a reminder text paid on time."

Chris Cunnliffe, chief executive of Tax Management New Zealand, said the IRD was becoming more vigilant and successful, with a couple of recent high-profile prosecutions.

Last month, high-profile property developer David Henderson, who has been involved in battles with the department for almost two decades, had his appeal over income tax due thrown out by the Supreme Court.