In our recent discussion with Matt Harris, we break down the $9.3 billion tax bill and why NZ businesses are struggling under increasing financial pressure. The scale of the $9.3 billion tax bill highlights deeper issues building within the economy.
The $9.3 Billion Tax Bill Didn’t Happen Overnight
The $9.3 billion tax bill has been building over time, largely due to how tax is paid in New Zealand. Many businesses operate in a system where tax is paid in arrears – meaning today’s payments relate to income earned in previous financial years.
That structure becomes a problem when conditions change. Following COVID, there was a short period where parts of the economy performed well. Since then, rising interest rates and inflation have pushed up the cost of nearly everything.
Businesses are now being asked to pay tax on stronger past earnings while dealing with tighter margins and reduced cashflow in the present.
Why NZ Businesses Are Struggling With Tax Arrears
A major reason why NZ businesses are struggling is the way tax arrears compound over time.
When payments are missed, Inland Revenue charges use of money interest – currently around 8.9% on underpaid tax. On top of that, penalties escalate quickly:
- 1% immediately after missing a payment
- A further 4% after seven days
- Ongoing 1% monthly penalties
This creates a snowball effect. It’s not uncommon for penalties and interest to make up a significant portion of the total tax owed.
At the same time, Inland Revenue has become less flexible. Where penalties may have previously been written off in some situations, that is now far less common as the overall debt position has grown.
Rising Costs Are Adding Pressure Everywhere
The $9.3 billion tax bill is a symptom of broader pressure across the economy.
Businesses are facing rising costs across multiple areas:
- Interest rates
- Payroll and employment costs
- Compliance and regulatory requirements
- Everyday operating expenses
Even incremental changes like increases to KiwiSaver contributions or additional sick leave, have an immediate impact on business costs without increasing revenue.
As costs rise, businesses are forced to work harder just to maintain the same position, often needing to pass those costs on, which then flows through the wider economy.
IRD Is Taking a Harder Line
With the tax debt reaching this level, Inland Revenue has shifted its approach.
The more lenient stance seen in previous years has tightened significantly. Businesses are now facing:
- Fewer penalty write-offs
- Reduced negotiation flexibility
- Increased enforcement action and liquidations
For some, the combination of historical tax debt and current obligations becomes too difficult to overcome, leading to decisions around whether continuing to trade is viable.
What Businesses Can Do From Here
One of the biggest risks is ignoring the issue.
Tax debt doesn’t stand still, it compounds daily through interest and penalties. Leaving it unaddressed makes the position significantly harder to recover from.
There are still practical options available:
- Entering repayment arrangements to stop additional penalties
- Negotiating settlements where possible
- Using lower-cost lending to reduce high IRD interest
- Leveraging tax pooling to better manage provisional tax timing
The earlier action is taken, the more flexibility there tends to be.
Key Takeaways
- Paying tax in arrears creates ongoing pressure on cashflow
- Interest and penalties compound quickly, increasing total debt
- Rising costs are making it harder for businesses to stay on top of obligations
- Inland Revenue is taking a stricter approach to collections
- Ignoring tax debt makes the situation worse – early action matters
- Tools like repayment plans and tax pooling can help manage obligations more effectively
Next Steps
If you’re unsure what you owe or how to manage upcoming tax payments, speak to Lighthouse Accounting to put a plan in place.
If you’d like to watch more, check out this other episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
