The Inland Revenue Department says a 10-year project to overhaul its IT infrastructure and introduce new processes to make it easier for taxpayers is still tracking below budget.

Treasury documents released yesterday showed the total cost of the project may be as much as $2.61 billion, when depreciation, capital charges and inflation adjustment are included.

IRD says these figures "have always been indicated in any reports to government", although they have not been included in public discussion of the estimated cost.

Excluding them, IRD estimates the total cost of $1.6 billion and $1.8 billion, of which the government is stumping up $1 billion and the balance coming from the tax department's existing reserves.


"The project is continuing to track on plan and is currently underspending against the budget approved by government," IRD said in an emailed statement.

The tax department's business transformation project to replace the 30-year-old FIRST system aims to protect the agency's ability to collect Crown revenue while allowing it to deal with a raft of new responsibilities tacked onto the network over the past 15 years, such as overseeing KiwiSaver payments, student loans and welfare entitlements.

It's also the bedrock of introducing new processes to make it easier for taxpayers to interact with the agency.

IRD's preferred option scoped the project at costing between $1.3 billion to $1.9 billion in real terms and was running 15 per cent below budget in October when Commissioner Naomi Ferguson updated a parliamentary select committee on the programme's progress.

A month later, former Revenue Minister Todd McClay said the project was forecast to come in below $1 billion and be completed faster than expected because it would use out-of-the-box rather than bespoke software.

A Cabinet minute in November released yesterday showed the executive authorised the Commissioner of Inland Revenue to incur operating and capital expenditure of up to $1.87 billion and depreciation and capital charges of up to $740 million from July 1, 2014 to June 30, 2024 - a total cost of $2.61 billion.