on Thursday resulted in some commotion and heated commentary from many sources. A handful of the issues really stuck out to me, particularly about the ongoing debate surrounding the cost-of-living payment and its distribution by Inland Revenue.
Even while we were already aware that Inland Revenue was unhappy to be involved in it, some of the additional documents that were disclosed shed further light on the situation. The advice from Treasury was as follows,
“…if you wish to progress with the payment along the lines of the commission, the Treasury recommends that Inland Revenue be the delivery agency.
Given that they are the agency best placed to deliver such a broad payment in the short term, they are the delivery agency that the Treasury recommends you choose.”
On the other hand, Inland Revenue was adamant that they not get involved for the following reasons:
“…delivering this payment, which is anticipated to need over 1,000 people at its height for almost two months, would have major operational consequences on Inland Revenue while also delivering the current COVID 19 economic benefits.”
Including this payment as part of the portfolio of services that Inland Revenue already provides would put an extreme strain on a workforce that is already operating at or near capacity.
An acknowledgement like that from Inland Revenue is really surprising. My best judgment is that the idea that Inland Revenue operates at a high level of efficiency is at the root of some of the criticism around the unintended overpayment of the cost-of-living payment to individuals who are not qualified for it.
Because humans are involved, there will inevitably be some mistakes made because, as the saying goes, “garbage in, trash out.” As soon as humans are engaged, there will be errors.
However, the thing that worries me about Inland Revenue’s admission is that it seems to indicate that the organization may be a little bit too lean and mean after its staff has been cut quite substantially by over 20%.
This is something that worries me because it seems to point to perhaps the organization being a little bit too lean and mean.
We are aware that it relies heavily on independent contractors, which, as we went through the previous year, resulted in a case being brought before the Employment Court, in which the company ultimately prevailed.
On the other hand, the admission that basically it needs to raise its workforce by roughly 20% to manage something like this suggests that perhaps Inland Revenue is more strained than it ought to be in terms of the number of staff members it has.
And this does, in a roundabout way, raise some doubts regarding the expanded competence of Inland Revenue following the completion of its Business Transformation programme. To believe that the cost-of-living adjustments could have been performed with nothing more than a few simple button presses is probably an oversimplification of the situation.
However, the fact that Inland Revenue needs to allocate one thousand staff members and additional resources to deliver the payment does surprise me.
Now, one of the other criticisms that arose has been made about the payment, and that is the fact that just 1.3 million people have gotten it so far out of the expected 2.1 million.
On the other hand, it was a fact that it was understood in advance that the estimated 2.1 million persons who were qualified for the program would not all receive a payment at once. Among the papers, one makes the following observation:
“approximately 25% of potentially eligible claimants, or around 500,000 individuals, will not receive this payment during the suggested window of August to October since their evaluation for the 2020 122 tax year is not complete,”
The article then continues to explain that based on information from tax filings for the year that ended on the 31st of March 2020,
“…by the end of July, approximately 38% of individuals who were required to submit an IR3 had done so, and by the end of September 2020, 53% of individuals were required to submit an IR3.”
Assuming the same pattern for the 2021/22 tax year, Inland Revenue expects there to be a long tail of IR3 filers who would not receive their cost-of-living payment during the proposed payment window.
According to the article, this will result in “more contacts” between the Inland Revenue Department and its customers, who will inquire as to the reason why they have not been paid.
The result of this will be that it will “have an impact on other programs for taxpayers,” such as Working for Families.
This is a point that can definitely be considered acceptable. But there is no denying the influence that politics has had on the situation. And any old stick will suffice when you’re training a dog to be obedient to your commands.
As a result, the government is taking responsibility for something that was obviously something that would have happened in the first place.
The other issue that comes over is a more general one revolving around the long-term viability of the current tax structure.
Treasury was throwing a lot of cold water on various expenditure plans that Ministers had formulated, and they were pointing out the unsustainable nature of what was being asked for. Treasury issued a warning about it.
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“If you want to meet these new standards consistently, you will need to strike a balance between your income and your expenditures. This would involve severely limiting the increase of spending over the medium term unless your revenue plan is altered to maintain a greater level of tax income to GDP in subsequent years.
As was pointed out in the Herald, this would need the establishment of new forms of taxation to maintain spending levels, relative to the size of the economy, at a higher level over the long run.
Now, one of the reasons that the Tax Working Group proposed a capital gains tax was because it had assessed the long-term fiscal sustainability of the tax system based on the then-current expenditure trends.
This is one of the reasons why the Tax Working Group recommended a capital gains tax. According to the government’s Submissions Background Paper from March 2018, based on the then-current projections, the primary expenses of the government would steadily increase to reach 31.1% of GDP by 2030, which would actually mean that there would be a deficit of 1.2% of GDP by that time. This information was derived from the projections that were in place at the time.
The TWG came to the conclusion that there was a need to take certain initiatives to expand the revenue base.
