Peter Dunne was interviewed on Q+A this morning. He was asked about the proposed IRD computer upgrade.
Peter Dunne, thank you for your time this morning. I’d like to start off by talking about IRD and the upgrade to software. $1.5 billion seems like a huge amount of money. Why is it so expensive over 10 years?
PETER DUNNE, United Future leader
And that is simply a ballpark estimate. This is a series of essentially specific projects as you take various elements of the tax system.
JESSICA But why is it so expensive?
PETER The point is until we start the detailed work on each particular project, that figure is really only a ballpark estimate. I suspect it will differ and some projects will be a little bit less expensive; others may turn out to be a wee bit more. But what we are doing is fundamentally-
JESSICA Just to clarify, though, are you saying it could be more than $1.5 billion?
PETER No, I’m not saying that. I’m just simply saying that is a ballpark estimate at this stage. But what we are doing is changing the whole way in which we run our tax system. Without being too technical about it, when we set up the current system about 20 years ago, Inland Revenue simply collected tax. Since then, you’ve added Child Support, Working for Families, KiwiSaver, Paid Parental Leave – a whole range of other initiatives that have come on which have complicated the system. We need to have a technology that is now fit for purpose. And that’s the basis of this change, and we’ll be working our way through that over the next few years.
JESSICA Experts like Rod Drury have come out and said this is an obscene amount of money and it could have been done for cheaper. Is that true?
PETER Well, we’re working closely with Rod Drury. I’ve talked with him on occasions. I know he meets with the commissioner of the department regularly. I think some of the points he made are very timely reminders and warnings, and we’re certainly happy to work alongside him and others in the industry in New Zealand to make sure we get the best outcome. I mean, government technology projects don’t have a very good reputation, and there have been a lot of examples just of late – let’s take Novopay as a classic – which we’ve gotta learn from, and I’m determined that we will not repeat the errors. That means we will take our time, we will consult widely with the affected parties and the interests and make sure we get it right before we move from one stage to the next.
JESSICA Because Novopay, it’s cost $11 million already. I mean, do we run the risk of this blowing out with an even bigger budget?
PETER Well, I think they’re the fears. There are also fears about the governance and the supervision that clearly Novopay has drawn attention to. I’m determined, working with a group of ministers, that we’re going to work through this systematically. We’re not going to get ahead of ourselves. We know we have a big transformation project ahead of us, but it’s important to get each step of that right and only to go live when it is right.
JESSICA Let’s go back to that cost, though. An insider told the NBR last week that if this had been done five years ago it would have been in the ballpark of about $600,000.
PETER I find that comment a rather strange one. I don’t know who the person was. I don’t recall them having had any involvement in the discussions. I think this is someone inventing facts after the event.
JESSICA So if it was done earlier would it have been cheaper?
PETER Look, what happened originally, and this goes back to the time of the Labour government, we started out then to try and do a specific, off-the-shelf rebuild, starting – from memory – with the Student Loan project. In the event that proved impossible to do, so we’ve had to come back and start afresh. Inevitably in that process some costs accumulate that would not have been there had the original objective been able to be achieved. It wasn’t able to be achieved for one simple reason – none of the retailers, the product retailers, said they could produce a product that had the capacity to meet what we required, and that’s the essential problem here.
JESSICA Let’s have a look at Australia, though. They did a similar upgrade and theirs was $800 million. I mean, we’ve nearly doubled that. Why is it so expensive?
PETER Yeah, and their outcome was disastrous, because they got the political stitch halfway through-
JESSICA So will you learn from that?
PETER So what they ended up doing was they’ve effectively got two parallel systems. That is a disaster. What we’ve got to commit to is this – if we start this programme, we’ve got to commit, even though it’s long-term, to seeing it through, and that is where both the tension and the potential cost arises. But I’m determined that we start with designated projects, we get those right, we then move on to the next one, and so on and so forth until we’ve completed the complete transformation.
JESSICA How did you manage to convince the government that this was the best place to spend this kind of money at the moment?
PETER Well, very simply. We have a system, as I said before, which dates back to 1991 when the job of Inland Revenue was a far more specific one. We’ve added on a series of responsibilities over the years that only, in a way, Inland Revenue has a capacity to deal with. The problem we have at the moment is our system works perfectly well today but that the capacity to make policy changes of a significant nature or to add any new social programs to it is zero, so we’re essentially in a time warp. We either upgrade or we end up saying that the tax system stays as it is forever and a day.
JESSICA What sort of policy changes are you talking about?
PETER Oh, major changes. For instance, if we were to invent KiwiSaver today, we probably would not be able to implement it within the current system framework. Now, I think that that is actually quite perverse – the government being told by a systems constraint what it can and cannot do, not able to implement its policy objectives, whatever they might be. So it’s important we have change; the question is how you manage a significant change of this nature in a way that’s going to deliver the positive outcome you seek at the end and learn from the lessons that have been mounting up over the years about how not to do these things.
Video: Peter Dunne on the balance of power (9:48)