Taxman Takeover: What this means for NZ

The Inland Revenue Department now has the power to force anyone to reveal personal information about themselves and their family. The Government says that this change is just to help inform tax policy, but as we have seen overseas, this could have more wide-reaching implications.

In 2020, under urgency, the Government passed an amendment to the Tax Administration Act (1994) sneaking in section (17GB) which allows IRD to force New Zealanders to provide personal information regarding their spending matters. At the time, Revenue Minister, David Parker, explained that the amendment was only to solidify the powers which the IRD already had. If that was the case, however, why did this need to be passed under urgency?

Quick use was made of the alteration. A compulsory survey was sent out to some of the wealthiest New Zealanders shortly after the bill was passed, asking probing questions to gain insight into the spending habits of both them and their families. You might wonder why you should be bothered about these changes—the project does after all only affect 400 individuals—but given the power that the IRD now holds, there is no reason why this won’t rapidly expand. We know what dangers can occur from politicizing the tax department just by looking overseas. 

Efforts to weaponize the USA’s Internal Revenue Service (IRS) were rife throughout the 60s and early 70s and the service has seen continued abuses even in recent history. John Andrew’s book ‘Power to Destroy’ outlines numerous breaches of the IRS across the Kennedy, Johnson and Nixon years where he explains how the department evolved into a political vehicle used as a defense against any dissidents of the administration.

The abuse consisted mainly of auditing individuals and organizations who spoke out against the administration. This would usually be to reveal fraudulent activity, or to simply bombard opponents with lengthy processes and in-person investigations. Through the Kennedy administration, under what was known as the Ideological Organizations Project (IOP), right-wing groups were explicitly targeted, where audits were used to defund these organizations by revoking their tax exemptions.

“Despite the cover of tax audits, the IRS was certainly aware that ideology and political activities rather than tax liabilities had singled out these organizations as targets.” (Andrew, 27, on IRS abuses under Kennedy).

This IRS behaviour continued after Kennedy’s assassination and into Johnson’s term, but Richard Nixon took it to an extraordinary level, aiming for widespread ‘ideological conformity.’ His enemy lists go down as perhaps the most well-known abuses of the Internal Revenue Service in American history. Their inception and operation represented a large portion of continued IRS abuse throughout the late 60s to early 70s in which audits were used to harass any opponents of Nixon and his administration. This, in addition to the discouragement of tax audits on his close allies, revealed a process of rewarding friends and punishing enemies. In general, it was an attempt to demonize his critics, ‘turning differences of opinion into matters of state security’.

“Attempts to politicize the IRS began almost as soon as Nixon took the oath of office. His first objective was to find a compliant individual for the office of IRS commissioner. Politics and Ideology were his chief concerns…”  (Andrew, 180).

Andrew’s book also discusses the much lesser-known and even more shocking Secret Service Staff (SSS). The group managed a far more extensive exploitation of the department, where the service dug into the territory of mass information gathering, rather than enforcement of tax laws. It continued to target dissidents of the Nixon administration as well as critics of the IRS, though unlike the enemy lists, it was primarily an IRS-led exercise.

“More than any other IRS program, the SSS exemplified an abuse of the income tax system. It focused more on intelligence gathering than it did on enforcement of the Internal Revenue Code.” (Andrew, 251).

How does this relate to the New Zealand context? Section 17GB doesn’t allow for subsequent prosecution from any findings under the law, but with such a broad scope for questioning, it opens the door for governments of any stripe plus the IRD to gather more and more personal data related to things further and further away from the purposes of the revenue service. While this may start off as a well-intentioned data-compiling effort to ‘inform future tax policy’, there is little in the way of protection to prevent the rule from turning the IRD into a partisan weapon.

As we see in America, political targeting and nontax-related investigations by the IRS were continuously used in one form or another, whether it was against the left or the right. There is no reason why the same won’t happen here. The importance of the IRD being apolitical is paramount and the relationship between Government and the department must be managed carefully.

Listen above to a recent episode of Taxpayer Talk discussing the issues with these new powers.

Regardless of any sinister intentions that may reveal themselves, the enactment of this law presents a clear attempt to gather information on an enormous scale. The extent of what data can be obtained is egregiously broad, and this means that extremely sensitive material could be vulnerable. However, while this may be through intentional Government prying, there is a far greater risk of breaches through IRD incompetency, negligence, or maleficence. In the US there were significant issues with unauthorized access by staff through the 90s in which service suffered serious security deficiencies and provided inadequate attempts to solve these problems according to a GAO report.

This Government has shown it will do anything to gain insight into people’s lives. Just a few years ago we saw IRD inquiring into where Kiwis sat on the political spectrum. Intelligence gathering is becoming a larger part of society more generally, with sensitive data less and less protected. We should be able to expect IRD to act independently from Government and other intelligence departments when so much power is at stake.

“The IRS often shared the results of its intelligence gathering with other intelligence agencies, congressional committees or the White House. Sometimes this was done at its own initiative; other times it stemmed from specific requests or political pressures.” (Andrew).

It is unclear exactly what Minister Parker and the Government’s intentions are more broadly with the enactment of this new power, but there is no reason to be certain that the IRD won’t be exploited in the future if this clause is not revoked.

In closing, let’s be clear: This change gives the IRD too much power. There is no viable cause for the taxman to be inquiring about your spending habits when you’ve done nothing to be suspected of being unlawful. And when family members including partners and children are also being probed, it becomes a completely inappropriate use of the powers of the department. It has started with those at the top, but there is no reason why this overreach won’t trickle its way down the pyramid.

It should not be underestimated what governments are capable of, especially when they have a powerful institution such as the IRD at their fingertips. That’s why we at the Taxpayers’ Union are opposing this change with our Nosey Parker campaign. You can help stop future violations of privacy by using our email tool to let David Parker know exactly what you think.