The government is considering reinstating a payroll subsidy for small businesses as forecasts show tax debt reaching $10.5 billion. Chartered Accountants Australia and New Zealand has proposed a two-pronged approach to curb the rise.
Rising Tax Debt Prompts Policy Review
Tax and entitlement debt stood at $9.3 billion as at 30 June 2025, up from $7.9 billion a year earlier, according to Inland Revenue statistics. Forecasts now point to $10.5 billion.
GST debt reached $3.3 billion and employer activities debt, including PAYE, hit $2.0 billion at the same date. These two categories account for more than half of the total stock.
Small and medium enterprises represent 97 percent of New Zealand businesses and hold 61 percent of the debt, per analysis of Budget 2026 data.
Industry Proposal Targets Root Causes
Chartered Accountants Australia and New Zealand has tabled a two-pronged solution. It calls for reinstating a targeted subsidy for payroll intermediaries serving small businesses and legislating mandatory real-time transfer of PAYE and deductions when wages are paid.
The payroll subsidy, which paid listed intermediaries $2 per employee per pay run up to a cap of five employees, operated from 2006 until its repeal effective 1 April 2018.
Compliance Funding Delivers Returns
Budget 2025 allocated an extra $35 million annually to Inland Revenue for compliance work. Budget 2026 added a further $15 million per year.
Inland Revenue collected $4.3 billion in overdue debt in the year to 30 June 2025, $252 million more than the prior year. Revenue Minister Simon Watts noted that initial funding helped collect approximately $3 billion in overdue tax in the year to date as of May 2026.
"The Government's initial investment in compliance has contributed to approximately $3 billion in overdue tax being collected in the year to date. We are committed to building on that momentum because every dollar left uncollected is a dollar that cannot support our schools, hospitals, and keeping our communities safe." — Revenue Minister Simon Watts, Budget 2026
The Minister is awaiting further advice on the accountancy industry proposals.
Fiscal Implications for Crown Accounts
Uncollected tax directly affects Crown revenue and the operating balance before gains and losses. Persistent growth in arrears may require higher impairment provisions or sustained enforcement spending.
New Zealand's debt-to-revenue ratio of 7.7 percent compares favourably with many peers, according to Inland Revenue, though the upward trajectory warrants attention. Australia's Single Touch Payroll model offers a real-time reporting benchmark that aligns with one element of the CA ANZ proposal.
Successful preventive measures could narrow the gap between assessed and collected revenue, supporting the government's fiscal consolidation path without additional borrowing.
