Media release: Pre-emptive reform could prevent tax debt before it becomes unrecoverable
Wellington (Tuesday, 2 December 2025) - A new approach to director accountability could prevent hundreds of millions of dollars in tax debt from becoming unrecoverable by requiring directors to act early when financial distress emerges, according to a research note from The New Zealand Initiative.
The research note, 'Responsibility before ruin: A pre-emptive fix for NZ's phoenix problem', addresses companies that accumulate large tax debts before dissolving, sometimes only to restart under a new name. It argues that current enforcement mechanisms wait until it is too late. In the 2023–24 financial year, Inland Revenue wrote off $694.5 million in tax debt, much of it from companies struck off the register where enforcement had become prohibitively expensive.
"The fundamental flaw in our system is that it only engages after tax debts have already accumulated to unrecoverable levels," says Dr Oliver Hartwich, Executive Director of The New Zealand Initiative. "By then, companies typically have no assets remaining and enforcement becomes impractical."
The research proposes a framework that prevents large tax debts from accumulating in the first place. Directors would face a statutory duty to act within a defined timeframe once GST or PAYE defaults occur – either remedying the default or initiating formal insolvency proceedings.
This early intervention prevents debts from mounting whilst companies continue to trade in financial distress.
"The system stops the problem before it develops," Dr Hartwich explained. "It creates clear expectations and incentivises timely action. Directors who respond appropriately are protected by a safe harbour. The system only engages when directors fail to act."
The note draws on Germany's legal approach to this problem and includes legislative principles showing how such a framework could be implemented in New Zealand, complete with a draft regulatory impact statement and Cabinet paper. The proposal suggests a timeframe of 30 to 90 days for directors to respond to tax defaults.
"This approach prevents the accumulation of unrecoverable debt whilst maintaining fairness for directors who manage financial distress responsibly," Dr Hartwich said.
ENDS
Dr Oliver Hartwich is available for comment. To schedule an interview, please contact:
Jamuel Enriquez, Marketing and Communications Manager
E: jamuel.enriquez@nzinitiative.org.nz
P: 021 022 34451
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About The New Zealand Initiative
The New Zealand Initiative is an evidence-based think tank and research institute contributing to public policy discussion.
Supported by the nation’s leading visionaries, business leaders and political thinkers, we are committed to making New Zealand a better country for all its citizens with a world-class education system, affordable housing, a healthy environment, sound public finances and a stable currency.
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