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Treasury wary of Inland Revenue IT claims

NZ NewswireNZ Newswire 14/07/2016 Paul McBeth

The Inland Revenue Department's programme to upgrade its ageing IT infrastructure and introduce new processes to make life easier for taxpayers is expected to cost up to $2.6 billion, budget documents show.

And while the Crown is expecting benefits worth more than twice that, the Treasury has warned those projections are optimistic.

Cabinet papers released on Thursday show IRD sought $1.38b in Crown funding between 2015/16 and 2023/24, of which $1.026b was for operating expenditure and $354m for capital spending.

The tax department will make up the balance from its existing reserves.

"A large portion of IRD's financial contribution to the programme stems from re-investing administrative savings through reducing its workforce by approximately 1500 full-time employees," Treasury officials said in a November aide memoire to Finance Minister Bill English and his associates Steven Joyce and Paula Bennett.

"If IRD does not accomplish this, it may require significantly more Crown funding to complete the programme. Similarly, if IRD is unable to retire FIRST (the current IT platform), it will also incur significant ongoing costs, reduced benefits, and will maintain high levels of operational risk."

A Cabinet minute in November showed the executive authorised the Commissioner of Inland Revenue to incur operating and capital expenditure of up to $1.87b and depreciation and capital charges of up to $740m - a total cost of $2.61b.

The document noted the financial benefits to the Crown from the programme are estimated to be between $2.95b and $5.96b, with compliance costs cut by $1.2b to $2.03b.

The Treasury said those estimates were "at the optimistic end of projections, and notes that optimism over costs and benefits in ICT projects across the public sector is commonplace".

Last year, former Revenue Minister Todd McClay said the forecast cost of the project had dropped below $1b because it would use out-of-the-box rather than bespoke software. IRD had initially scoped the project's cost at between $1.3b and $1.9b.

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