KEY POINTS:
After six years as commissioner of Inland Revenue, David Butler leaves the tax department in far better shape than he found it.
Public confidence in the integrity of the tax system took a hammering after the Winebox saga and the 1999 parliamentary inquiry which followed claims that the
IRD's heavy-handedness in debt collection had driven a taxpayer to suicide.
While the inquiry neither endorsed nor explicitly rejected the idea that there was a culture of fear and punishment within the department, the select committee did conclude that an attitudinal shift from the top was required.
Butler arrived from the Australian Tax Office in 2001 with a straightforward conviction: "The way you treat your people is how they will treat your customers."
That has been borne out, he believes.
"We are now seen as a very good employer. For instance, we advertised 10 team leader positions for KiwiSaver in Hamilton and got over 500 applications in a very tight labour market," he said.
"That's typical of what happens now, because we do have a reputation of being a good place to work."
And the select committee cancelled three scheduled routine appearances - which give MPs the opportunity to hold the commissioner to account - in a row. "They said they were too busy and we were now too boring."
Early in his term, Butler introduced a taxpayers' charter, setting out their rights to confidentiality, reliable advice and consistency.
A code of conduct for the IRD's more than 5000 staff followed.
Even tax practitioners who detect some slippage in how taxpayers are treated say it is useful to have those documents to brandish under the IRD's nose.
Taxpayers' perceptions of whether they get a fair go from the department are important in a system that depends on voluntary compliance.
In 2002 leading tax accountant John Shewan delivered a broadside on that score.
"There is something fundamentally wrong with the tax system when a small business that owns up to a small mistake in a GST return, or an error in a depreciation schedule, faces weeks, if not months, of aggressive questioning and correspondence with the IRD on the application of shortfall penalties," Shewan said. "But the business across the road which deliberately flouts the law by undertaking cash jobs suffers no penalty."
Nearly five years later legislation amending the penalties is before Parliament but it makes only minor changes, suggesting lawmakers are taking the view that "it ain't broke".
On the cash economy, Butler's approach has been to co-opt and co-operate with industry bodies in a bid to encourage a culture of compliance.
The message is more palatable if it is delivered jointly with the relevant trade association.
And if the IRD becomes aware of a new business being set up, it will write offering a free advisory visit.
But while compliance has demonstrably improved as a result of this industry partnership approach, the IRD continues its normal vigilance.
"We will look at the Yellow Pages, for instance, and see who's advertising for work and then check to see if they are registered for GST and so on. But it's a lifelong quest, and it does get down to the community changing its attitude too. If people are prepared to pay cash under the table, they are reinforcing that behaviour."
A co-operative approach extends to the writing of the tax laws as well as enforcing them.
"The way New Zealand develops tax policy, I would say, is world's best practice," he said. "It is so open and transparent. There is extensive consultation ... and that leads to much greater ownership from the tax professional community."
Maintaining the tax base is a perpetual challenge, but the revenue yield can be substantial.
"For example, reforming the thin capitalisation rules for financial institutions yielded about $360 million a year in extra tax. Base maintenance stuff is always going to have some push-back from parts of the business community. But the process works."
In one respect the tax base is startlingly narrow. "If you count PAYE and GST as well as corporate income tax, 26 corporate groups pay half of all the tax collected," he said.
Tax authorities around the world are increasingly worried about the trend for public companies to be taken private, replacing shareholders' equity with debt that gives rise to deductible interest charges.
"My colleagues in the US and UK are doing a huge amount of work on this. And the commissioner in Australia told me that, on the basis of the publicly available information, the interests looking to take Qantas private expect to pay no tax," he said.
"I'm not aware of any sort of solutions for other tax authorities to the private equity issue but they are more and more concerned about it."
International co-operation among tax authorities will be a large part of Butler's next job, heading the OECD's tax administration and consumption tax activities.
It is hardly, he admits, a hardship post. But the softly spoken and personable 56-year-old, like his wife, is a keen gardener and the prospect of apartment living, even in Paris' fashionable 16th arrondissement, will be a wrench.
But there is always the Bois de Boulogne park nearby.
