More than half a million New Zealanders now owe money to Inland Revenue, with total tax debt climbing from less than $6 billion in 2023 to $9.4 billion by March 2026. But behind those extraordinary numbers lies a bigger question: what happened to the New Zealand economy that left so many households and businesses unable to meet one of their most basic financial obligations?
eLocal Report: Based on reporting by Susan Edmunds for RNZ HERE, with additional reporting and economic context by eLocal.
How Did We Get Here?
New Zealand's $9.4 billion tax-debt problem did not appear in isolation.
Since 2020, businesses have been hit by a sequence of extraordinary economic shocks: Covid lockdowns and restrictions, heavy government borrowing and unprecedented monetary stimulus, followed by inflation, rapidly rising interest rates, falling household spending, recession and a surge in business insolvencies.
Small and medium-sized businesses now account for 65 percent of outstanding tax debt, while Inland Revenue is increasingly involved in winding up companies that can no longer meet their obligations.
The result is a disturbing cycle. Businesses weakened by years of economic disruption are failing, their accumulated tax debts are being pursued, and when some of those businesses are finally liquidated there may simply not be enough money remaining to pay what is owed.
So the question is not only:
Why did Inland Revenue allow $9.4 billion in tax debt to accumulate?
It is also:
What happened to the New Zealand economy that left more than half a million people owing the taxman in the first place?
The $9.4 Billion Tax Bill
The numbers are confronting.
As of March 2026, more than half a million people had debt owing to Inland Revenue. Total tax debt stood at $9.4 billion, of which IRD considered approximately $5.9 billion collectable.
Less than three years earlier, total tax debt was below $6 billion.
Perhaps even more revealing is where that debt sits.
Micro, small and medium-sized businesses account for 65 percent of outstanding tax debt, while GST and employer deductions such as PAYE represent 57 percent of the total.
That suggests this is not simply a story about individuals forgetting or refusing to pay their tax.
Increasingly, it is a story about the financial health of New Zealand businesses.
Why Couldn't Businesses Pay?
Simplicity chief economist Shamubeel Eaqub raises legitimate questions in the RNZ report about whether businesses have effectively been permitted to continue trading while insolvent and whether Inland Revenue should have intervened sooner.
Paying tax, as Eaqub points out, is not an optional business expense.
But there is another question worth asking.
Why have so many otherwise ordinary New Zealand businesses reached the point where they cannot pay it?
That question takes us beyond tax administration and into what has happened to the New Zealand economy since 2020.
First Came Covid
Chartered Accountants Australia New Zealand lead John Cuthbertson told RNZ that tax debt had ballooned over the previous four years, mostly as a result of Covid.
That matters.
New Zealand's Covid response involved unprecedented government restrictions on normal economic activity. Businesses were ordered to close or severely restrict their operations during lockdowns, international tourism effectively disappeared, supply chains were disrupted and large sections of the economy became dependent upon government support.
For many businesses, tax became another liability accumulating on the balance sheet while normal cash flow disappeared.
The economy eventually reopened.
The liabilities did not disappear with it.
Then Came the Monetary and Fiscal Response
At the same time, New Zealand embarked on an extraordinary economic experiment.
With the Official Cash Rate approaching its effective lower bound, the Reserve Bank introduced its Large Scale Asset Purchase programme — quantitative easing — for the first time in New Zealand's history.
Under the programme, the Reserve Bank purchased government bonds and paid for those purchases by crediting commercial banks' settlement accounts. The RBNZ explains that these purchases increased settlement cash and therefore expanded New Zealand's monetary base.
This occurred alongside enormous fiscal spending by the Government, financed substantially through increased Crown borrowing.
It is important to distinguish the two mechanisms.
Government borrowing did not itself constitute quantitative easing, and an increase in broad money measures such as M2 cannot simply be attributed dollar-for-dollar to government borrowing. Fiscal expansion and extraordinarily loose monetary policy were, however, operating simultaneously.
The immediate objective was to prevent an economic collapse during Covid.
But the economic environment that followed was very different.
Interest rates were exceptionally low, credit conditions were loose, asset prices rose strongly and inflation subsequently became New Zealand's next major economic problem.
The Reserve Bank's later modelling maintains that the LSAP programme supported output and inflation during the acute Covid crisis but did not meaningfully cause the subsequent inflation peak.
That distinction deserves to be recorded.
Inflation Was Followed by the Cure
Once inflation became entrenched above the Reserve Bank's target range, monetary policy reversed sharply.
Interest rates rose.
Mortgage payments increased. Business finance became substantially more expensive. Household discretionary income was squeezed.
Businesses were hit from several directions simultaneously: higher wages, higher electricity and fuel costs, higher rents, higher financing costs and customers with less money available to spend.
Profit margins were crushed.
By June 2024, Eaqub was describing an "absolute plunge in business profits", with real profit per enterprise falling substantially from its pre-Covid level.
For businesses that had already accumulated debt during the pandemic, there was increasingly little room left to manoeuvre.
Then New Zealand Fell Into a Deep Recession
By the second half of 2024, the country was experiencing a severe economic contraction.
GDP contracted sharply through the June and September quarters of 2024. Excluding the extraordinary Covid shutdown period, the six-month contraction was widely described as New Zealand's weakest since 1991.
That distinction is important.
On some measures the downturn was considerably worse than the contraction experienced during the 2008 Global Financial Crisis, but the available evidence does not support describing it as New Zealand's largest recession since the Great Depression.
The consequences for businesses were nevertheless unmistakable.
In late 2024, Eaqub said the rate of business insolvencies had climbed above the previous peak experienced during the Global Financial Crisis.
Official Companies Office statistics subsequently continued to show elevated liquidator appointments.
This matters when considering today's enormous IRD debt because these are not separate economic stories.
They are overlapping parts of the same period of economic stress.
Increasingly, IRD Is Pulling the Plug
There is another striking feature of the insolvency figures.
Inland Revenue itself is increasingly initiating proceedings.
Eaqub told RNZ it was noticeable that many insolvency requests were now being initiated by IRD.
But liquidating a company does not magically recover the tax.
Once a business has collapsed, Inland Revenue joins the process of attempting to recover what remains.
Sometimes there is very little left.
As Eaqub observed, winding up a business does not necessarily mean the entire tax liability will ever be recovered.
That raises an uncomfortable question about whether pursuing businesses only once they have reached the point of collapse is actually capable of recovering much of the money taxpayers are owed.
The Taxman Cannot Collect Money That No Longer Exists
This is perhaps the uncomfortable reality behind the $9.4 billion figure.
Businesses collect GST and PAYE on behalf of the Government, and legally those funds must be passed to Inland Revenue.
But during severe cash-flow distress, some businesses may use money that should have gone to IRD to pay wages, suppliers, rent, finance or simply keep their doors open.
That does not remove the tax liability.
Nor does financial distress excuse businesses from their legal obligation to pay tax.
But it does tell us something important about the severity of the underlying cash-flow problem.
By the time Inland Revenue finally liquidates such a company, there may simply be insufficient assets remaining to recover the debt.
IRD says it can only write off tax debt under specified circumstances, including completed liquidations where it has been established that no further funds are available.
The carcass may simply be empty.
Who Ultimately Bears the Cost?
There is an uncomfortable circularity to what has happened.
The state imposed extraordinary restrictions on economic activity during Covid.
The Government then borrowed heavily to finance its response.
The Reserve Bank simultaneously introduced unprecedented monetary stimulus.
Inflation followed the pandemic-era disruption and stimulus, although economists continue to debate the relative contribution of domestic monetary and fiscal policy, international supply disruptions, energy prices and other global factors.
Interest rates were subsequently raised sharply to suppress inflation.
Businesses and households then absorbed those higher financing costs while economic activity weakened.
Business failures surged.
And Inland Revenue is now attempting to recover billions of dollars in unpaid tax from businesses and individuals struggling after that extraordinary sequence of events.
That does not mean every dollar of today's tax debt was caused by government policy.
Businesses fail for many reasons, and taxpayers remain legally responsible for meeting their obligations.
But neither can the extraordinary increase in tax debt reasonably be considered in isolation from the extraordinary economic period through which New Zealand has just passed.
The Numbers Tell Their Own Story
Tax debt has climbed from below $6 billion in 2023 to $9.4 billion.
More than 500,000 people owe Inland Revenue.
Micro, small and medium-sized businesses account for 65 percent of outstanding tax debt.
GST and employer deductions such as PAYE represent 57 percent of the overall debt.
Business insolvencies climbed above their Global Financial Crisis peak according to Eaqub, while official company statistics have continued to show significant numbers of liquidator appointments.
And despite increased collection activity, IRD expects the problem to continue.
Inland Revenue says the ratio of tax debt to revenue is likely to rise in the near term, noting that prolonged economic pressures have contributed to increasing tax debt across other OECD countries as well.
Those facts deserve more than a discussion about whether Inland Revenue should simply have collected the money sooner.
The Question New Zealand Should Be Asking
The immediate question is how Inland Revenue allowed $9.4 billion of tax debt to accumulate.
But the more important question may be:
What happened to New Zealand's economy that left more than half a million people owing the taxman in the first place?
If businesses are collapsing, profits have been squeezed, households are struggling and billions of dollars of tax cannot be collected, simply becoming more aggressive about collection addresses the symptom.
It does not necessarily explain the disease.
New Zealand should certainly ask whether Inland Revenue acted quickly enough.
But taxpayers are entitled to ask something of government as well:
How much of today's tax-debt crisis is the delayed economic bill from the extraordinary decisions and events that have shaped New Zealand since 2020?
Sources
Susan Edmunds, RNZ — Over half a million people owe tax. How did this happen?
RNZ — Business insolvencies 'much higher' than in the global financial crisis
New Zealand Companies Office — Latest company statistics
Reserve Bank of New Zealand — Macroeconomic and Fiscal Impacts of Quantitative Easing in New Zealand
Reserve Bank of New Zealand — Money creation in New Zealand
Independent reporting. Original context. Credited sources.