Cost of living payments potentially go to 120,000 ineligible people worth $14m

Revenue Minister David Parker. Photo / Mark Mitchell

Nearly $14 million of taxpayers' money was deposited into ineligible people's accounts through cost of living payments, including 85 dead people.

Some 108,000 payments - worth $12.6m - have also potentially gone to people overseas, despite the payment being intended only for people in New Zealand.

The temporary payment of $350, paid out in three instalments of about $116 over three months, was the centrepiece of Labour's 2022 Budget, aimed at showing it was addressing the cost-of-living pressure.

It was to go to all those on incomes of less than $70,000, but the Government was left red-faced after the first payment went to people living overseas – both New Zealanders and migrants who had since moved to another country.

Documents released today show a total of nearly 4.2 million payments have gone out over three instalments, worth $488m.

This includes nearly 4.1 million payments to eligible people, worth $475m.

The payments were intended to go to 2.1 million people, but data released today shows each of the three payments went to just 1.35 million people - nearly 800,000 fewer than estimated.

A briefing provided to Revenue Minister David Parker this week showed that with the first payment on August 1, 12,043 payments went to the wrong people - costing $1.4m.

"After payment one we identified three Inland Revenue [IRD] coding and administrative issues that resulted in ineligible people receiving the payment," the briefing said.

"We corrected these errors and the individuals did not receive payment two."

The majority of people who have been confirmed to have received the payment in error were individuals who only have portfolio investment entity (PIE) income.

There were 11,564 ineligible people in this category.

IRD said people whose PIE income "was a loss were not excluded as they should have been".

"This was because of a coding error that only excluded people with only PIE income, if that income was greater than zero."

While Winter Energy Payment (WEP) recipients also weren't meant to get the payment - something that angered the Green Party - 394 ended up getting it in error.

There were also 97 dead people incorrectly determined as eligible, with 85 eventually being paid.

"This was due to administrative errors," IRD told Parker in October. "The indicator on the account that identifies them as deceased (and prevents a number of actions from being taken) has been removed to allow required account activity, such as the processing of final tax returns to be completed."

Once those actions were taken, the indicator the individual was dead was not reapplied, leading them to receive the first payment.

Data also shows the first payment was made to 75,000 people potentially living overseas.

The problem was not fixed right away, with a further 32,000 also being paid the second instalment, worth $12.58m in total.

IRD said those numbers could decline if they were confirmed to be in New Zealand.

So far about 1200 people who were detected as being overseas have since confirmed they are in New Zealand.

Some of those identified as being overseas may also have contributed to the 1020 payments that have been repaid.

IRD said initially they simply treated those with a New Zealand address as being in New Zealand.

It did so because while other data they held could indicate people to be overseas, it was not definitive.

Their priority was making payments to people who were eligible, and the process needed to be kept simple "in order to be made on time".

After the first payment, officials decided to not automatically pay people they had "less confidence" were in New Zealand. Those people had to contact IRD.

By the third payment, IRD also used Customs data for the more than half a million people receiving the payments whom they had "less confidence" were in New Zealand.

This process was also imperfect, and if those people excluded were actually in New Zealand they needed to contact IRD to confirm it.

National Party finance spokeswoman Nicola Willis said the documents showed the payment had been a "shambles from start to finish".

She said it had been advertised as supporting 2.1 million people but so far just 1.35 million had received it.

She also criticised how long it took to address errors in the system.

Parker said he expected the number of payments to grow to more than six million once the remaining eligible people file their tax returns by the first quarter of 2023.

Parker said the payment was designed to get money into people's hands "as quickly as possible".

"The best way to do that was by using the available information held by IRD to determine eligibility.

"While IRD records are good they are not perfect, so a small percentage of payments went to people who, for instance, were overseas but had a New Zealand address in IR's data sets.

"The only alternative – requiring people to apply – would have taken much longer, cost far more in wasted administration than would be saved, and seen many eligible people, who did not apply, miss out because of the extra administrative barrier."

Parker said an application-based scheme would have cost $30m to administer - $14m more than the administration cost of the scheme put in place, and more than also including the costs of payments to ineligible people.