The number nobody wants to say out loud
New Zealand’s overdue tax debt hit $9.3 billion at 30 June 2025, up from $7.9 billion a year earlier. That follows a 37% surge the year before. The debt book sat at $4 billion in December 2020. It has more than doubled in four and a half years.
Some of this is definitional. IRD changed when it classifies debt as overdue in 2025, adding roughly $163 million to the reported figure. That is a rounding error on a $1.4 billion annual increase. The underlying trend is unmistakable.
527,000 customers now carry overdue balances. IRD set up 207,000 instalment arrangements in the year to June 2025, up from 198,000 the prior year. That is not generosity. It is a revenue authority quietly building infrastructure to manage a problem it cannot collect its way out of.
GST and PAYE tell you where the pain lives
The composition of the debt is more revealing than the total. GST debt rose from $2.8 billion to $3.3 billion. Employer activities debt, covering PAYE and KiwiSaver, climbed from $1.5 billion to $2.0 billion. Combined overdue GST and PAYE has nearly quadrupled from $1.4 billion in March 2018 to $5.2 billion in March 2025.
IRD’s own annual report is explicit: overdue GST and employer-related debt is “particularly prevalent amongst smaller businesses.” This is not a problem of corporate tax planning. It is small operators using the taxman as an involuntary lender.
Waterstone insolvency firm puts it directly: “When businesses can’t pay their GST and PAYE, it’s often the canary in the coal mine. They’re using tax money as working capital to keep the doors open.”
The PAYE line IRD is drawing in criminal ink
IRD is now treating unpaid PAYE as a different category of offence. Employer tax debt grew from $800 million in September 2020 to $2 billion by June 2025. A formal revenue alert warns that employers face up to five years in prison for non-compliance. A Christchurch woman was jailed for three years for taking $1.6 million from employee wages and keeping it.
Robyn Walker, tax partner at Deloitte, notes that “during Covid years there was more leniency applied to PAYE payments, causing some employers to take a casual approach.” That casual approach now carries a criminal record.
Enforcement is ramping while quality slips
IRD is not managing this quietly. Business audits hit 6,700 in 2025, up 26% from the prior year. Section 157 bank-redirect notices rose 19%, with nearly 10,000 active notices redirecting business income straight to the Crown. IRD-initiated liquidations surged 68% year-on-year.
The result: 2,934 companies entered liquidation in 2025, the highest since 2010.
But volume and quality are diverging. Chris Cunniffe of Tax Management New Zealand warns that “auditor experience is a recurring concern, with many lacking practical commercial understanding or confidence to manage reviews effectively.” IRD’s average staff tenure dropped from 15.5 to 12.7 years between 2021 and 2025, with turnover peaking at 18.7% in 2022. More audits, less experienced auditors, and a $9.3 billion target list is a recipe for blunt enforcement.
The Covid loan time bomb is still ticking
Separately, 20,000 small businesses have defaulted on $447 million in Covid-era cashflow loans. Loans that carried 3% interest on concessionary terms now accrue at 13.88% once in default. IRD has already written off over $65 million and the bulk of repayments only fell due mid-2025.
Bryan Williams, principal at BWA Insolvency, has described the mounting defaults as “a tsunami on the way that would drive business collapse in coming years.”
The economy is weaker than the headline story
Cunniffe’s broader diagnosis deserves attention: “The softly approach was left in place too long, allowing struggling companies to accumulate debt that should have been addressed years earlier.” That is a policy failure, not just a business failure. The government chose leniency during Covid, then delayed the return to enforcement until the debt was unmanageable for thousands of firms.
Meanwhile, businesses are paying invoices 6.39 days late on average, a 14% deterioration year-on-year. A CA ANZ survey found 82% of tax agents’ clients carry unpaid tax debt. That is not a fringe problem. That is the mainstream of New Zealand’s SME economy signalling that cashflow stress is structural, not cyclical.
When the taxman has to build 207,000 payment plans in a year and still watches the debt book grow by $1.4 billion, optimistic talk about economic recovery is running well ahead of what the numbers actually show.
Sources
- IRD: Tax and entitlement debt statistics (2025)
- IRD Annual Report 2024: $4 billion in overdue tax debt collected (2024)
- IRD Annual Report 2025: $4.3 billion in overdue tax debt collected (2025)
- IRD Annual Report 2025: Services to manage debt and unfiled returns (2025)
- NZ Herald: Liquidations sign some businesses unprepared for end of post-Covid tax leniency
- Waterstone: New Zealand’s hidden business crisis is now in plain sight (2025)
- RNZ: IRD issues warning over employers failing to pass on tax deductions (2025)
- Newsroom: Tax agents warn of IRD auditors’ declining ability as liquidations hit 15-year peak (2026-02-04)
- NZ Herald: IRD Covid loan defaults hit $447m as 20,000 small firms fall behind
- NZ Herald: Small business Covid loan defaults soar, $65m already written off by IRD
- HRM Online: IRD crackdown drives liquidations to 15-year high
- Idealog: NZ business payment stress worsening – report (2026-02)