Dunne: $1.5b is ballpark figure for IRD upgrade - some parts could cost more, some less
I'm hoping to talk to Revenue Minister Peter Dunne about IRD's $1.5 billion software upgrade early next week.
Meantime, we have his session on TVNZ's Q+A this weekend.
Mr Dunne follows a similar line to Friday, when he told Rod Drury, Ben Gracewood and others discussing an NBR article on Twitter: "Take a deep breath everyone. The $1.5b figure is just an estimate, not the budget figure at all"
A close follower of the process would note at this point that estimates often are pretty much the budget figure. Still, things aren't set in stone, so I look forward to hearing more on the minister's position.
He says under the headline $1.5 billion figure, there will be separate projects to upgrade elements such as Child Support, Working for Families, KiwiSaver and Paid Parental Leave, adding, "some projects will be a little bit less expensive; others may turn out to be a wee bit more."
Thursday, NBR ran a story quoting an ex IRD senior manager who detailed how he met with Mr Dunne five years ago, pressing for a system upgrade that, at the time, would have cost $500 million to $600 million. He was frustrated it had taken so many years for an upgrade to get the go-ahead, given the cost and difficulty was increasing the longer IRD stayed with its legacy system.
On this point Mr Dunne told Q+A, "I find that comment a rather strange one. I don’t know who the person was. I don’t recall them having had any involvement in the discussions. I think this is someone inventing facts after the event."
It was not a strange comment. It was a carefully considered comment by a respected person close to the process.
Anyhow, those who thought Xero boss Rod Drury made good points with his "Dear IRD" opinion piece on how to save $1 billion on the project will be glad to know he's in dialogue with the Revenue Minister - and IRD Commissioner Naomi Ferguson.
But it's still unclear if any of the advice from Mr Drury, and others in the local IT industry, will get taken onboard.
The one certainty is this is not a decision that can be made on the quiet a a bored public look in the other direction. Within half a day, "Dear IRD" had become one of NBR ONLINE's best-read articles of the year.
Watch the full interview here.
RAW DATA: Q+A TRANSCRIPT - JESSICA MUTCH INTERVIEWS PETER DUNNE
SUSAN WOOD He is the great survivor - perhaps the most lobbied MP in Parliament. United Future leader Peter Dunne says his party has held the balance of power for more than 20 pieces of legislation. How did this happen when he is a party of one? Peter Dunne is with Jessica Mutch.
JESSICA MUTCH Peter Dunne, thank you for your time this morning. I’d like to start off by talking about IRD and the upgrade to software. $1.5 billion seems like a huge amount of money. Why is it so expensive over 10 years?
PETER DUNNE, United Future leader And that is simply a ballpark estimate. This is a series of essentially specific projects as you take various elements of the tax system.
JESSICA But why is it so expensive?
PETER The point is until we start the detailed work on each particular project, that figure is really only a ballpark estimate. I suspect it will differ and some projects will be a little bit less expensive; others may turn out to be a wee bit more. But what we are doing is fundamentally-
JESSICA Just to clarify, though, are you saying it could be more than $1.5 billion?
PETER No, I’m not saying that. I’m just simply saying that is a ballpark estimate at this stage. But what we are doing is changing the whole way in which we run our tax system. Without being too technical about it, when we set up the current system about 20 years ago, Inland Revenue simply collected tax. Since then, you’ve added Child Support, Working for Families, KiwiSaver, Paid Parental Leave - a whole range of other initiatives that have come on which have complicated the system. We need to have a technology that is now fit for purpose. And that’s the basis of this change, and we’ll be working our way through that over the next few years.
JESSICA Experts like Rod Drury have come out and said this is an obscene amount of money and it could have been done for cheaper. Is that true?
PETER Well, we’re working closely with Rod Drury. I’ve talked with him on occasions. I know he meets with the commissioner of the department regularly. I think some of the points he made are very timely reminders and warnings, and we’re certainly happy to work alongside him and others in the industry in New Zealand to make sure we get the best outcome. I mean, government technology projects don’t have a very good reputation, and there have been a lot of examples just of late - let’s take Novopay as a classic - which we’ve gotta learn from, and I’m determined that we will not repeat the errors. That means we will take our time, we will consult widely with the affected parties and the interests and make sure we get it right before we move from one stage to the next.
JESSICA Because Novopay, it’s cost $11 million already. I mean, do we run the risk of this blowing out with an even bigger budget?
PETER Well, I think they’re the fears. There are also fears about the governance and the supervision that clearly Novopay has drawn attention to. I’m determined, working with a group of ministers, that we’re going to work through this systematically. We’re not going to get ahead of ourselves. We know we have a big transformation project ahead of us, but it’s important to get each step of that right and only to go live when it is right.
JESSICA Let’s go back to that cost, though. An insider told the NBR last week that if this had been done five years ago it would have been in the ballpark of about $600,000.
PETER I find that comment a rather strange one. I don’t know who the person was. I don’t recall them having had any involvement in the discussions. I think this is someone inventing facts after the event.
JESSICA So if it was done earlier would it have been cheaper?
PETER Look, what happened originally, and this goes back to the time of the Labour government, we started out then to try and do a specific, off-the-shelf rebuild, starting - from memory - with the Student Loan project. In the event that proved impossible to do, so we’ve had to come back and start afresh. Inevitably in that process some costs accumulate that would not have been there had the original objective been able to be achieved. It wasn’t able to be achieved for one simple reason - none of the retailers, the product retailers, said they could produce a product that had the capacity to meet what we required, and that’s the essential problem here.
JESSICA Let’s have a look at Australia, though. They did a similar upgrade and theirs was $800 million. I mean, we’ve nearly doubled that. Why is it so expensive?
PETER Yeah, and their outcome was disastrous, because they got the political stitch halfway through-
JESSICA So will you learn from that?
PETER So what they ended up doing was they’ve effectively got two parallel systems. That is a disaster. What we’ve got to commit to is this - if we start this programme, we’ve got to commit, even though it’s long-term, to seeing it through, and that is where both the tension and the potential cost arises. But I’m determined that we start with designated projects, we get those right, we then move on to the next one, and so on and so forth until we’ve completed the complete transformation.
JESSICA How did you manage to convince the government that this was the best place to spend this kind of money at the moment?
PETER Well, very simply. We have a system, as I said before, which dates back to 1991 when the job of Inland Revenue was a far more specific one. We’ve added on a series of responsibilities over the years that only, in a way, Inland Revenue has a capacity to deal with. The problem we have at the moment is our system works perfectly well today but that the capacity to make policy changes of a significant nature or to add any new social programs to it is zero, so we’re essentially in a time warp. We either upgrade or we end up saying that the tax system stays as it is forever and a day.
JESSICA What sort of policy changes are you talking about?
PETER Oh, major changes. For instance, if we were to invent KiwiSaver today, we probably would not be able to implement it within the current system framework. Now, I think that that is actually quite perverse - the government being told by a systems constraint what it can and cannot do, not able to implement its policy objectives, whatever they might be. So it’s important we have change; the question is how you manage a significant change of this nature in a way that’s going to deliver the positive outcome you seek at the end and learn from the lessons that have been mounting up over the years about how not to do these things.
JESSICA You do hold a lot of power. You’re a one-man party. We’ve seen since 2008 that you’ve actually held the crucial vote on 20 pieces of legislation. Is it right that one person, yourself, has so much power?
PETER Well, firstly, I didn’t put myself in that position. The electorate dealt the cards at the election.
JESSICA But how do you deal with that?
PETER And the second point is how I deal with it. I don’t just wake up each morning and decide what capricious thing am I going to do today. I’ve got a quite developed matrix of how we deal with things. Firstly, is the issue under debate covered by the confidence and supply agreement that United Future has with National? If it is, as was the case with the mixed ownership model, for instance, then the outcome is very clear.
JESSICA Let’s touch on that for a moment - the asset sales legislation. You obviously hold the power to get that through for National. Does that give you a lot of extra power and bargaining power back?
PETER In some senses it does, on unrelated issues. But that was a very clear case. Our election policy said we oppose-
JESSICA Like what? What kind of trade-off-?
PETER I don’t want to go into specific detail, because that actually destroys the advantage that you’ve got. But come back to that one. Our election policy said that we were, in principal, opposed to asset sales except if the government nominated the energy companies and Air New Zealand, we would agree to that provided the public shareholding was to be no greater than 49% and there was a cap on individual shareholding. That was included on our negotiations and put into the agreement. And the government at that point didn’t want to statutorily specify those limits-
JESSICA So you got some influence over that.
PETER And so it became a no-brainer to vote for it when the legislation arrived.
JESSICA Another one-
PETER So that’s the first point. The second point - because I haven’t finished what I was saying before - if it’s not covered by the Confidence and Supply agreement, is it something that was covered by United Future’s election policy? And if it was, clearly you vote for in accordance with that. That’s why I’m backing Paid Parental Leave, for instance. The third one is neither of the above, and then it just comes down to, basically, the circumstances of the time and what seems like the right thing to do.
JESSICA And one of those things will be about SkyCity. The government will need you if it needs to work out some kind of a deal with SkyCity. Have you worked out any kind of pay-off for that?
PETER My view on that is quite simple. I think Auckland needs a world-class convention centre. In my role both as Associate Minister of Health and previously, I’ve been working over the last 10 years with the structure of-
JESSICA But will you get anything back?
PETER Hang on, hang on. And the important point about the SkyCity one, from my perspective, is if you can achieve the convention centre without a blowout in the number of gambling machines and an increase in the numbers of those, then that’s the best deal. But I’ve not seen any deal at this stage. It’s premature to talk about that. If there’s a trade-off then it may well be something that occurs at the time, but if you’re saying to me do I say ‘I support this in return for your doing that’, it’s not that crude.
JESSICA So you haven’t worked out any kind of agreement with-
PETER Well, it doesn’t work- I haven’t seen the details, so there is no agreement at this point, other than I’ve indicated the general view that I’ve just expressed to you. But it doesn’t work in the way of saying, ‘you give me this and I’ll give you that’. It works in the way of saying, ‘OK, I’ll give you this thing. Now, when there are things that arise that I might want, I suppose you could say there’s money in the bank’.
JESSICA Let’s talk about the future of United Future. How long will you stay in politics?
PETER I have no idea, because that decision’s ultimately not made by me but by my voters in Ohariu in the first instance, and that’s a decision that they will have the opportunity to refresh or reject next year.
JESSICA Your popularity in Ohariu has been going down. You got 1400 in the last election. Do you need to have a cup of tea with the prime minister?
PETER Well, my majority actually went up at the last election.
JESSICA 1400 isn’t a huge majority, though.
PETER No, it’s not, but it’s better than it was. And I’ve been there for nearly 30 years. I don’t need cups of tea with people. I think they know me pretty well and they can make a judgement.
JESSICA I mean a cup of tea with the prime minister.
PETER Yes, I know what you mean. I didn’t have one with the prime minister.
JESSICA Will you have one, or will you want one this time?
PETER Actually, I have a cup of tea with the prime minister quite frequently. It’s just that the public doesn’t see it. (LAUGHS)
JESSICA When you say ‘cup of tea’, will you ask for one with the prime minister this election?
PETER I’m not going into that at this stage because the election’s nearly 18 months away. What the lie of the political land is at that time is far too soon to speculate upon. What I will say is this - that United Future has been around for a long time. We represent the flickering flame of liberal democracy in New Zealand. That does wax and wane from time to time. There will always be people who will coalesce, if you like, around that point of view, and we’re here to represent those points of view.
JESSICA That’s a nice place to leave it. Thank you very much for your time this morning, Peter Dunne.