Date posted: 7/06/2017 6 min read

Tax detox with Inland Revenue's Naomi Ferguson

The woman leading New Zealand's Inland Revenue, Naomi Ferguson, outlines why modernisation was needed and how it will make life easier for taxpayers.

In brief

  • Naomi Ferguson is leading the digital transformation project for New Zealand's Inland Revenue.
  • The ten-year plan is to modernise New Zealand's tax system and is estimated to cost between NZ$1.5b and NZ$1.7b.
  • Ferguson is New Zealand’s first female tax commissioner and head of Inland Revenue.

Belfast-born Naomi Ferguson had no idea what to do for a job as a graduate in her early twenties. Armed with a Master of Arts in English Literature and Sociology from Scotland’s Glasgow University, she decided to take a role where she could “learn a little bit about tax”.

“Then when I grew up and knew what I really wanted to do, that wouldn’t do me any harm,” Ferguson reasoned, joining the graduate programme for the United Kingdom’s tax department, Her Majesty’s Revenue and Customs (HMRC).

After entering HMRC as a trainee inspector of tax, Ferguson now heads New Zealand’s tax department. She is leading the organisation – and taxpayers – through significant changes to the way tax is paid.

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While she had only planned to stay at HMRC for a few years, it was the opportunities both for development, and to make a difference to people’s lives, that got her hooked.

Path to the top

At HMRC, Ferguson moved up the ranks to become head of compliance, responsible for 18,000 staff.

In 2003 she was seconded to New Zealand as deputy commissioner of Inland Revenue (IR), relishing the chance to work and live in a country she had never visited, testing herself in “a broad and challenging role”.

But there were challenges beyond work to navigate.

“I think I was probably a little naive about what type of South Pacific island we were,” she laughs. Winter in Wellington, with its average high of around 11°C, “came as a bit of shock”.

 “I’m told by some of our partners in the private sector that it’s the biggest transformation going on in the southern hemisphere – that’s quite scary.”
Naomi Ferguson, commissioner and chief executive, Inland Revenue.

After the three-year secondment, she returned to HMRC as director, business customer and strategy. In 2012 she was appointed as IR’s commissioner and chief executive. Before accepting the role, she asked herself the same questions she does before taking on any new position. Could she make a difference and would the environment support her to do that?

“I do like seeing an organisation move forward and deliver more for its customers so I’m always looking for a role that can help me actually do that and where I’ve got the support from people who want to do that.”

She knew the IR role was right as not only did she already know the environment, she knew the department was starting to think about transformation.

Digital transformation

Ferguson is leading IR’s digital transformation project, a ten-year plan to modernise the tax system, estimated to cost between NZ$1.5b and NZ$1.7b.

One of the most important leadership decisions she has had to make at IR was determining the ambition for transformation, which she views as the organisation’s biggest opportunity to make a difference to the people of New Zealand.

“Where could we take the department and the system and where was the value we could add for New Zealanders over the next period of our existence?”And it’s no small ambition.

“I’m told by some of our partners in the private sector that it’s the biggest transformation going on in the southern hemisphere – that’s quite scary.”

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The legacy system is more than 25 years old, built when the organisation was just the tax department.

“We now have social policy products that we support – things like KiwiSaver [New Zealand’s voluntary, work-based retirement savings initiative] and student loans.

 “It was built before anybody really even understood the internet, never mind smartphones, so it doesn’t really work in a real time, real life way.”

The process has included looking at how people live their lives today as opposed to how they did 30 years ago when the legacy system was designed. Another reason for the digital overhaul was that the old system raises business continuity concerns.

“At what point does a 25-year-old system start to get too fragile? It’s not there yet, but we wanted to act before we got to that.”

Most New Zealanders want to contribute to society and one of the ways to do that is through paying taxes, Ferguson says. The upgrade is designed to make paying tax quicker and easier.

“All of our research tells us that our customers want to pay the right amount and they want to do that as simply and easily as they can. They’re busy running their businesses, running their lives. Tax should be something that fits in seamlessly with that, not a huge bureaucratic filter.”  

Ferguson says one of the big benefits of the transformation is saving time for customers.

“We know that time is money and so for a lot of businesses, that compliance cost is a real cost in dollar terms.”

The upgrade is also designed to make the system more certain.

“One of the things people have always said to me is ‘I want to know I’ve got it right’. We want to use some of our new analytical capabilities to be able to confirm to people faster that they’ve got it right and we’re already doing that with GST returns that have been lodged since February.”

A tranche of improvements was rolled out in early February – a number of online capabilities not previously available, such as the ability to file and pay GST at the same time. Ferguson admits while there were some “teething issues”, results can already be seen.

With IR’s changes, and the wider changes in the marketplace around accounting software, Ferguson sees tax agents moving away from compliance and into more business advisory services.

“Next year we introduce the accounting income method for small business… this is something where I would expect accountants over the next year to be working with their clients to think about whether or not it is suitable for a business.”

She recommends that organisations considering similar large digital transformation projects be clear about their objectives.

“What your ambition is and what you want to achieve, and then hold really tightly to that because transformation is a word that can mean just about anything to anyone.”

A tale of two tax departments

Ferguson has a long history of public service, having spent more than 20 years working in revenue agencies and has successfully delivered major transformational change projects.

She admits noticing a constraint of resources by moving to a “relatively small” organisation. While  HMRC has around 56,000 staff, IR has 5,500. Learning to work with far fewer people and resources has forced her to prioritise more, but the upsides are greater resourcefulness and connectivity.

“I think it’s one of the things my folk here do brilliantly. If I think about my policy team, there’s going to be on average 50 people and they’ve got to answer all the questions about international tax or domestic tax laws for our ministers that the same team answers in the UK, but in the UK there’s probably 600 of those people.”

“And,” she adds, “if you think about something like the international tax world – should we change our transfer pricing laws? – it doesn’t really matter whether the population is four million or 600 million, you’ve still got that difficult question to work through and answer.”

More information

Putting paid to the “taxman”Ferguson is New Zealand’s first female tax commissioner and head of Inland Revenue, which she describes as “an absolute privilege”.

She recalls being told in her twenties she was assertive, ambitious and aggressive and feeling quite hurt about it.

“I suspect if I’d been a 25-year-old male I’d have thought that was fantastic.”

She says women need to acknowledge they are good at what they do, find their voice in the workplace, and speak up.

She is a driving force behind the Government Women’s Network which is focused on helping women  in the public sector achieve their potential. Women make up the majority of New Zealand’s 350,000-strong public sector.

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Ferguson admires how well New Zealand’s public sector is doing in employing women in top roles, when compared to the UK.

“If you look at the number of chief executives who are female, it’s a very strong number and there are a number of us who are the first female in our roles.”

This includes the former Controller and Auditor-General Lyn Provost FCA, featured in the May 2016 Acuity, acuitymag.com“I think you could benchmark us against any other sector. I don’t think you’d find the same in the NZX top 50 in terms of female CEOs but the number running large government departments is a different picture.”

Ferguson has been recognised for her influence and leadership in New Zealand’s public sector, winning the public policy section of the 2016 Women of Influence Awards.

In May 2017 Inland Revenue began consultation on plans to slash its workforce. IR plans to cut 1,500 staff between 2018 and 2021 as part of its cost-reduction and modernisation programme. The cuts were foreshadowed in 2016 and could see a staff reduction of 30%.

This issue was first published in the June/July 2017 issue of Acuity magazine.