Prioritising tax debt as part of New Zealand’s compliance approach

Supported by additional funding in our 2024 and 2025 government budgets, Inland Revenue has been taking a different approach to reduce tax debt, with some positive results.

Where debt arises, we aim to encourage people to get back on track as quickly as possible and use the most appropriate interventions tailored to their circumstances. We have been doing this by using smarter tools and making debt more visible so businesses that play by the rules are not disadvantaged.

Tax debt in New Zealand has been growing as a share of revenue. Nearly 98% of tax is paid within 6 months, but the remaining 2% adds up quickly on a tax base of more than NZ$110 billion a year. Tax debt in June 2026 is currently sitting at over NZ$9 billion. Our Compliance Strategy highlights rising tax debt as a growing threat to the integrity of the tax system and sets a clear direction to prevent debt and respond sooner when it emerges.

During the COVID19 pandemic, we took a more lenient approach to active enforcement, to give businesses breathing space as they worked through challenging times. However, we have found a number of businesses have struggled without ongoing COVID support from government and are incurring compounding debt.  Debt write-offs also haven’t kept pace with the growth of the debt book. Rising cost of living pressures and a flat economic climate have also contributed to the struggles for some businesses and have influenced the wrong kinds of behaviour.

The different ways we are tackling tax debt is reflected in our Compliance Strategy and is based around a greater understanding of which customers are most likely to get into debt, why debt has occurred and the best actions to take to collect the debt or address wrongdoing. For example, we now have more focus on our higher risk segments. In the last year, 77% of the growth in tax debt was among sole-traders and small to medium sized businesses. Over 70% of the debt growth has been from unpaid employer contributions of withholding taxes at source and goods and services tax.

We are finding that early engagement is changing behaviour for the better. We are giving taxpayers options before debt becomes unmanageable, while protecting businesses that play by the rules. For example, we have proactively offered instalment arrangements to tens of thousands of taxpayers, and we are now calling taxpayers quite soon after they go into debt. 

Collecting tax debt is difficult. Good judgement is required given the current environment and pressures on businesses. There is a need to balance empathy with evidence-based decision making. Using our tools and customer insights are critical to distinguish genuine hardship from taxpayers who have capacity to pay.

Going forward, debt will remain a core government priority and Ministers will continue to expect a strong focus on bending the debt curve. We will continue to prioritise newer debt (under 2 years) to maximise impact on cash collected.