Government IT failures confirm the cost of complexity

It seems Revenue Minister Peter Dunne had little alternative when he made the announcement on Wednesday that New Zealand's Inland Revenue Department (IRD) would embark on a $1.5billion upgrade of its IT system.

New Zealand has an archaic 20-year-old system that can barely cope with the needs of today — and according to government briefing papers, the current system is on the brink of collapse.

The IRD's systems and culture are also so inefficient, half of its data entry staff are engaged full-time in correcting the data entries made by the other half.

Furthermore, at the time of the last Budget, Finance Minister Bill English said that he could not make any major changes to the country's tax system because the IRD's IT system would not be able to cope with them.

It all seems unbelievably shambolic, but it gets worse. An upgrade could take 10 years or more, according to the revenue minister, and the precise cost is also unclear.

Mr Dunne also said that the role of the IRD had expanded since the current computer system was set up in 1991. Since then, as well as administering the tax system, the IRD now has to manage and administer a share of social policy programmes, like Kiwisaver, student loans, child support, working for families, family tax credits, and paid parental leave.

His comments sparked debate on the need for taxes to be kept simple to make IT systems cheaper. Rod Drury of accountancy software company Xero also argued that New Zealand could develop its own system far cheaper itself, instead of farming out the work to overseas consultants as the government looks set to.

There was also debate on how the costs of government IT projects tend to explode. Indeed, it was only last year that Prime Minister John Key spoke of the IRD computer upgrade as a $1 billion project.

It is bizarre and ridiculous that the situation could be allowed to get as dire as it has.

It is a pity, perhaps, that with the system on the verge of collapse — it crashed yesterday — that there probably is no time to see if New Zealand cannot realistically develop its own solution.

Using outside consultants or foreign bought software is risky, too, as the government has also experienced from the Novopay system for paying teachers. This Australian-sourced system ordered by the former Labour government has suffered repeated failure as it cannot cope with the complex system New Zealand has for paying its teachers.

But is $1.5 billion so outrageous after all, even if it amounts to more than $300 for every Kiwi resident in New Zealand?

ANZ Australia this week said that it was spending A$1.5 billion on its technology for a million or so users, which suggests that IT projects are certainly never cheap.

The only moral from this mess can only be that we must keep our tax and payments systems simple, even if thwarting the ambitions of politicians who keep developing complicated policy initiatives might appear undemocratic.

Keeping it simple would keep our costs down and help systems work, even giving us the ability to develop our own software instead of using consultants or products from abroad.

Novopay and now the IRD confirms the cost of complexity.