Woodhouse Michael: Taxation (Transformation: First Phase Simplification and Other Measures) Bill — In CommitteeText is incorporated into the Bound VolumeWoodhouse Michael: Taxation (Transformation: First Phase Simplification and Other Measures) Bill — In Committee[Sitting date: 24 May 2016. Volume:714;Page:11153. Text is incorporated into the Bound Volume.]Hon MICHAEL WOODHOUSE (Minister of Revenue): I just want to address the three or four very important issues that have been raised either side of the dinner break. But before I do can I thank the members of the Finance and Expenditure Committee for their consideration of this bill. Tax bills tend to be reasonably dry things but I think the select committee has applied itself diligently to some issues that have been raised both in the select committee and in the Committee of the whole House.I will start with the point that Mr Robertson has addressed in respect of co-location. I want to thank the committee specifically for its diligent consideration of this issue because I think we all understood what was intended. Firstly co-location is not only about efficiency; actually what we will be seeing—and indeed the Inland Revenue Department (IRD) has the responsibility for the administration of things like the student loans scheme Working for Families and child support—is a significant overlap with the Ministry of Social Development and its roles and functions. So co-location might have efficiency in at least one office that it occurs in now but it also has the potential to improve the quality of the service that we can provide to the New Zealand taxpayer. But I think that the committee was right to look carefully at clause 117 in order to ensure that we have the right balance between ensuring that due diligence takes place because there is a higher standard of care that is required to maintain the secrecy of people’s tax records and that inadvertent breaches do not give rise to an unnecessary punishment. I think the committee landed that clause in exactly the right place but the proof of the pudding will be in the eating.The effectiveness of the amendment that the committee has made will be in the manner in which the commissioner gives effect to it. I am confident that she understands and will use her best endeavours to protect the integrity of the tax system bearing in mind that the exception applies only to unintentional breaches—no intentional breach will be given the protection of this clause. I think that was understood by the committee but I think that the question was more about the margins and what effectively constitutes “reckless” or “careless” and not really about understanding or applying oneself to that requirement as an IRD employee. I am confident having spoken to many many IRD staff around the country that they take their secrecy obligations very very seriously. I have yet to find anybody who is flippant about that. In fact if anything Ministers have found section 81 a very very strong black box and rightly so. However I do note that later in the year as part of the tax programme we will be reviewing the Tax Administration Act and so this is a nice sort of segue into a broader review and the questions of the privacy of information are going to be foremost in that.Can I turn now to the issue of electronic signatures because—Chris Bishop: Oh please do.Hon MICHAEL WOODHOUSE: OK I will. Mr Nash made a very good point before dinner and it has been followed up by Messrs Tabuteau and Robertson. I think he asked the question about what would constitute “reasonable grounds” for the receipt of an electronic signature but he then went on to quote clause 74. That was inadvertent I am sure but clause 74 actually works on out-bound communications so I want to touch on both of those things.At the moment we currently have an arrangement whereby a document might be deemed to be sent if it is sent to the last-known physical address even if that person has moved on. We certainly need to update that because the whole essence of this is to give effect to a much more modern tax administration system. I think it would be enough simply to say that if somebody has communicated with the IRD by email then there are reasonable grounds to presume that the commissioner can then communicate back. In fact registering with myIR requires an email address to be put on there. Once the identity of the registered person is verified then I think it would be reasonable grounds to assume that the commissioner can communicate with the taxpayer via that email address. Even if the email address changes the same thing would apply with the last-known physical address: that it would be deemed to have been sent.It is clause 73 that deals with the issue that Mr Nash was raising in respect of what would constitute reasonable grounds for the use of electronic signatures in the receipt of communications from it. I think the same principle would apply but the question then becomes one of identity—verification that the communication is from the source that it claims to be—because it is not difficult actually to purport to be someone else in an electronic world. There is I think an allowance for the IRD to place a reasonable reliance on the use of electronic signatures because there is discretion obviously for a signature not to be accepted if the IRD has reasonable grounds to suppose otherwise; that might be inconsistency of information such as having a separate communication from someone who was also purporting to be that taxpayer from a different electronic source. But in the absence of a “reasonable grounds” test the IRD would be prevented from actually acting on not accepting the signature even though it had good grounds to suspect that it was from a fraudulent source—perhaps changing a bank account for example and then asking for a refund to be paid into a different bank account. The IRD has got to be very diligent in ensuring that it is on top of that. I think “reasonable grounds” is a well understood nomenclature in legal jurisprudence so I am confident that the tests that will be applied will be effective ones.I want to just finish by giving the Committee a brief commentary on an issue that Clayton Cosgrove raised before dinner and that was on the issue of the update on Business Transformation. The essence of taxpayer security the reliance on electronic signatures and the things that this bill will give effect to are all predicated on a business transformation project the like of which I think the Government has not seen at all. The number was $1.5 billion; it is now down thanks to well excellent efforts by the Minister of course backed up by the IRD. But actually the fact that we are not building a bespoke system has I think a significant value-add and I am satisfied that although this is a project that is not actually just about technology this is about fundamentally changing the way the IRD engages with the many millions of taxpayers around the country—that real lightbulb moment where we are building our tax system around the needs of the taxpayer not the other way around. I think that is a significant opportunity to materially improve the experience of interacting with the IRD. But it is a big project. It is risky. Mention was made by Mr Cosgrove of going all the way back to the 1990s and INCIS and Novopay more recently but there are successes in Government IT projects—the ones you never hear about. Certainly the department of immigration’s online system version 2015 has gone extremely well. It is under budget and it was just on time.Clare Curran: Why don’t we hear about them then?Hon MICHAEL WOODHOUSE: We do not hear about them Ms Curran because they are good news—they are good news—and of course good news does not make the front page of the Dominion Post I have to say; bad news definitely will and Novopay is a good example of that. But it is also true to say that Novopay was a good learning experience I think in making sure that we do not sign agreements before we know that the vendor is ready to roll.The CHAIRPERSON (Hon Chester Borrows): Hipkins would agree.Hon MICHAEL WOODHOUSE: Mr Hipkins would certainly agree with that I am sure. But I am satisfied actually that I have seen the whites of the eyes of the IT managers at the IRD—their blood pressure is normal; I test it every fortnight—and although we are still some months away from phase 1 the GST roll-out I am confident that the Business Transformation project and the IT platform that will underpin these changes are well on track for a successful implementation.