Over half a million people owe tax. How did this happen?

The Inland Revenue Department (IRD) has been grappling with an increasing amount of tax debt owed by individuals and businesses in New Zealand. As of March 2025, over half a million people had tax debt, totalling $9.4 billion, with 62% of that amount, or $5.9 billion, being considered collectable. Micro and small-to-medium enterprises (SMEs) were responsible for 65% of the outstanding tax debt, with Goods and Services Tax (GST) and employer deductions like Pay As You Earn (PAYE) accounting for 57% of the overall debt.

Economist Shamubeel Eaqub noted that while the rate of tax debt increase has slowed to 1.6% annually, the situation is still concerning. He highlighted that many insolvency requests are now initiated by the IRD, but this doesn't guarantee that the owed tax will be paid. Eaqub also pointed out that the question should be asked about how the tax debt has reached such a high level, such as the ease of starting businesses in New Zealand and the obligations of starting a business.

Chartered Accountants Australia New Zealand leader John Cuthbertson suggested that the tax debt has significantly grown over the past four years, largely due to the economic impact of the Covid-19 pandemic. The government, through various departments, including the IRD, has adopted a more lenient approach towards taxpayers in recent Budgets, allocating additional revenue for compliance and debt collection activities.

This has created a desire to reduce the debt, with an investment return of up to 12 to one being expected in some cases.

Eaqub proposed a potential solution, which could involve preventing businesses from accessing funds they should be paying in PAYE and GST, thereby discouraging overspending. However, this issue remains a significant concern, as a substantial portion of the tax debt is owed by micro and SME businesses, primarily in the area of PAYE.