Tax and welfare debt

August 14th, 2013 at 2:00 pm by David Farrar

Laura Walters at Stuff reports:

Government agencies are more likely to write off unpaid tax than welfare debt, new research shows.

Victoria University accounting and commercial law associate professor Lisa Marriott’s research showed Inland Revenue was more likely to write off unpaid tax than the Ministry of Social Development () was to write off welfare debts.

So why might this be?

“There appears to be no basis for treating debtors to the two government agencies differently,” Marriott said.

I agree, but are they treated differently when different factors are accounted for?

Between July 1, 2011, and June 2012, Inland Revenue wrote off nearly 50 per cent of interest and penalties applied to overdue tax, amounting to $374 million.

It wrote off $435m in core debt, reflecting 11.6 per cent of collectable debt, the study showed.

MSD wrote off $8.7m in core debt, or 2.1 per cent of collectable debt.

The study showed that in the same period, the average value of outstanding tax debt was $14,479 per taxpayer in debt, while the average value of outstanding welfare debt was $2523 per beneficiary in debt.

And that is the key difference – the level of debt. The more debt that is owed, the less likely it is the person owing it can pay it. Those with high levels of debt can choose bankruptcy which means almost no debt gets paid. Hence you sometimes work out a compromise.

The research is interesting, but not conclusive. What would be more useful if an analysis of how much is written off by and MSD for debts of a similar level. I doubt writes off many debts when say just $1,000 is owed.

MSD would collect debts from beneficiaries’ payments, she said.

That may explain some of the difference also. IRD can’t just simply deduct tax owed from money it pays you. At best it can go to your bank or employer and ask them to do it.

 

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18 Responses to “Tax and welfare debt”

  1. KiwiGreg (3,255 comments) says:

    IRD debt will also be some from non-humans unlike welfare – so a company in liquidation for example could be big chunks.

    But probably main reason is Key helping out is mates in big business while sticking it to the poor beneficiary.

    [DPF: Yes of course the PM personally instructs both IRD and WINZ who gets to have a write off, and who doesn't.

    And what colour is the sun in your world?]

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  2. nickb (3,687 comments) says:

    Even if they are different, so what? Welfare write-offs primarily occur as a result of people helping themselves (often fraudulently) to money they are not entitled to.

    Tax write-offs on the other hand primarily occur as a result of hard-working self employed small business owners enduring tough trading conditions and struggling to keep feeding the government behemoth on their backs, or from other situations outside of people’s control such as sickness or workplace accidents which hinder people’s earning ability. Lets not forget that the self employed are often paying two year’s of tax simultaneously with provisional and terminal tax, then also paying GST, ACC, FBT, and the list goes on ad infinitum. And we are meant to feel sorry for beneficiaries?

    Only a ridiculously small amount of tax write-offs will be to assessments made as a result of evasion or tax avoidance.

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  3. flipper (4,060 comments) says:

    Sorry, but go see Peterwn’s excellent post in the GD.

    I agree with his total demolition of the silly VUW paper.

    The differences are so great that any comparison between IRD and MSD is ludicrous.

    As for Kiwi Greg???? Lord help the fool. If he believes what he was written there is probably no hope.

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  4. lastmanstanding (1,297 comments) says:

    Bring back the debtors prisons and include company directors whose company defaults and goes into liquidation. Its far too easy in NZ to declare bankrupt or put a company into liquidation after carefully transferring the assets to a third party or selling them below market value.

    Think the ex finance company directors doing porridge or home detention in the multi million dollar houses (owned) by the family trust or a friendly third party who just happens to also fund their millionaire lifestyle whilst the punters who invested in their crooked schemes are on welfare or worse.

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  5. dime (9,972 comments) says:

    So the govt takes money of us by threat of jail and sometimes doesnt take enough.

    they are less likely to go after that last little bit than go after some scumbag who takes more charity than he should?

    charity paid for by the hard working peeps of this country?

    im shocked.

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  6. labrator (1,850 comments) says:

    Not to mention that the IRD can get it totally wrong and punitively send your penalties through the roof. I’m not exactly sure how the equivalent could happen with welfare payments. It’s not like you can get escalating welfare payments.

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  7. MD (62 comments) says:

    Of course IRD’s figures regarding core debt vs. interest and penalties are extremely suspect. Remember they apply all payments to penalty and interest first and only then to the tax, so in the event of a write off any previous payments made towards the tax have probably struggled even to keep up with the rate of penalties notwithstanding they max have in fact paid back more than the total tax.

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  8. Harriet (4,970 comments) says:

    IN Australia they have ‘debt agreements’ which is when you apply through the Bankruptcy Section of the government to stop interest being applied to your debts, and the principle[or most of] being paid back at a rate which is affordable to you.

    The department -or it’s agents[private debt collection companies] – then ask the banks ect [IRD could be included in this] to come to an agreement with you as to how much you can pay each week towards your loan. You then pay that back – which is generally most or all of the principle.

    It is still recorded that you have defaulted on loans [which still allow you to apply to borrow but at a higher interest rate] for 5yrs.

    Unless you have contents that are way over the value of your loans like an expensive second car, boat ect – which they will then make you sell – they don’t take any of your assets.

    I know someone who owed just short of $50k and found himself unable to repay it. He applied for a debt agreement, the interest was stopped, and the agreement was for about $190.00 per week to be paid for 5yrs. The $50k gets paid back. The phone calls and worry stop. He gets on with his life.

    The reason that debt agreements work in Australia is due to the fact that people now have 2 options – by getting help to stop the interest when they are in dire trouble, or continuing on and eventually facing bankruptcy and losing ALL their assets.

    BTW – debt agreements have been around for donkey’s years, it’s just that the banks have never bothered to tell the general public.

    Neither have the tax office! :cool:

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  9. peterwn (3,271 comments) says:

    The main puropse of the study IMO is to use it as leverage to try and persuade the Government to write off beneficiary debts so that such beneficiaries are not saddled with a $10 or so weekly cut to their benefits. These long term recoveries are perceived as another form of benny-bashing. This overlooks the fact that delinquent beneficiaries effectively borrow much of this money interest free pending pay-back.

    In a benefit fraud case the judge (from memory) declined to order reparation on the basis the beneficiary could not meet it. The beneficiary (supported by beneficiary advocates) then tried to argue unsuccessfully that this prevented any form of recovery action.

    Lop-sided scientific studies quickly raise the ire of the scientific community when found out. However they seem rather acceptable in other academic disciplines.

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  10. davidp (3,581 comments) says:

    I don’t know what the situation in NZ is, but my experience in Australia is that the tax people are happy to write off overdue business tax if collection would endanger the viability of the business. Unscrupulous businesses can game the system, but at the end of the day the government doesn’t gain anything from forcing business in to bankruptcy with consequent loss of jobs.

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  11. Mark (496 comments) says:

    Thought the main difference would be that interest and penalities can be applied to IRD debt, and not to welfare debt.

    So the welfare debt is interest free, whereas tax debt is not, and if someone can pay the tax debt in one lump sum there is an incentive to write off the interest and penalities.

    Often with tax debt is calculated retospectively, potential over several year where penatlies and interest is added on imeediately, os not really a comparsion between to two.

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  12. leftyliberal (651 comments) says:

    This appears to be the full paper for those interested in the full analysis:

    http://docs.business.auckland.ac.nz/Doc/40-Lisa-Marriott.pdf

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  13. CJPhoto (221 comments) says:

    My guess is the majority of tax debts written off relates to companies in liquidation. IRD is the largest entity putting companies into liquidation so it stands to reason that it also has to write off a lot of debt as a result.

    To be a fair comparison, the figures should only pick up debts where the debtor is not bankrupt/liquidated.

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  14. Reid (16,454 comments) says:

    At best it [IRD] can go to your bank or employer and ask them to do it.

    Don’t you mean:

    At best it [IRD] can go to your bank or employer and “ask” them to do it.

    This appears to be the full paper for those interested in the full analysis:

    Not if it’s like their electricity “analysis” ll.

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  15. leftyliberal (651 comments) says:

    Reid: I wasn’t aware that Ass. Prof Marriott had published on electricity?

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  16. thedavincimode (6,759 comments) says:

    What an utterly fatuous comparison. Any discussion about statutory provision governing write-off, the manner in which debt arises, creditor priorities, solvency issues – anything. I only ask because it just didn’t seem worth following the link.

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  17. Enkidu (9 comments) says:

    DPF said “The more debt that is owed, the less likely it is the person owing it can pay it”. Erm,no. Those on a benefit will be unlikely to have any source of income, let alone any money to pay back MSD. Those owing tax are likely to be earners and are therefore a bit more likely to pay it back. (Do they have a choice?) The real reason the IRD numbers are so high is that they charge ‘penalties’ and backdate amounts supposedly owing on some flimsy maths .

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  18. Paul Marsden (998 comments) says:

    Aside from accessing your bank account and taking money, the IRD can also go to your debtors and order them to deduct monies, owing to you. The IRD will also breach your privacy and disclose to your debtor(s) how much money they claim you owe them (disputed or not)

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