IRD business transformation project to cost up to $2.61b

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 $2.61 billion, budget documents show.

The project was initially scoped at $1.3 billion to $1.9 billion.

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

In the May budget, the government set aside $503 million of new operating funding over four years and $354 million in capital funding for the IRD's 'business transformation' project. Cabinet papers released today show IRD sought $1.38 billion in Crown funding between 2015/16 and 2023/24, of which $1.026 billion was for operating expenditure and $354 million for capital spending. The tax department will make up the balance from its existing reserves, with capital and operating expenses of between $685 million and $700 million and depreciation and capital charges of $420 million to $430 million, the documents show.

"A large portion of IRD's financial contribution to the programme stems from re-investing administrative savings through reducing its workforce by approximately 1,500 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 $1.87 billion and depreciation and capital charges of up to $740 million from July 1, 2014 to June 30, 2024 - a total cost of $2.61 billion. The document noted the financial benefits to the Crown from the programme are estimated to be between $2.95 billion and $5.96 billion, with compliance costs cut by $1.2 billion to $2.03 billion.

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", although it considered reduced operational risk and reduced cost and time to implement policy changes were of greater significance.

In a separate aide memoire to English on the business case for the programme, Treasury officials said they agreed with IRD's intention for a staggered implementation. A delay to the programme of 12 months would incur an extra cost of between $200 million to $300 million, it said.

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

The tax department's business transformation project to replace the 30-year-old FIRST system aims to protect the agency's ability to collect Crown revenue while allowing it to deal with a raft of new responsibilities tacked onto the network over the past 15 years, such as overseeing KiwiSaver payments, student loans and welfare entitlements.

(BusinessDesk)