GST is becoming working capital. Why earlier intervention could save viable businesses, says Dave Ananth

By Dave Ananth*

Everyone in the room recognises it. The more important question is not whether it happens. It is why it has become so common.

GST has become working capital.

Not universally. Not proudly. Often not even intentionally—at least not the first time.

GST has quietly become the buffer between surviving another month and running out of cashflow.

As at 30 June 2025, Inland Revenue was owed $3.3 billion in GST debt. Total tax and entitlement debt had reached $9.3 billion. GST alone therefore represented more than one-third of the total debt book.¹

That is not simply a compliance statistic.

It reflects something deeper about the financial position of many New Zealand businesses.²

The hierarchy of survival

When cashflow tightens, business owners are not deciding who deserves to be paid.

They are deciding who cannot wait. Wages come first. Then suppliers. Then rent. Then electricity. Then the bank.

Against those immediate pressures, GST becomes the creditor that can wait.

The reasoning is almost always the same. "We'll get through this month." "The next contract will fix it." "Sales will improve." "We'll catch it up next period."

Sometimes that happens. Often it does not.

The businesses appearing in Inland Revenue's debt statistics are rarely the first businesses to have used GST this way.

They are simply the ones that were unable to replace the money before the debt began to compound.

That is not an excuse.

The legal obligation is clear.

GST belongs to the Crown.

But understanding why this occurs is very different from condoning it.

Why GST?

GST is uniquely vulnerable because it is collected long before it is paid.

For weeks, and sometimes months, it sits in the business bank account alongside every other dollar received from customers.

It looks like trading income. It is not. It is tax collected on behalf of the Crown. Yet when liquidity disappears, that distinction becomes blurred.

Unlike a supplier demanding payment tomorrow or employees expecting wages on Friday, GST is a future obligation. That timing creates temptation. Not because business owners wish to avoid paying tax, but because they are trying to keep the business alive long enough to generate the cash needed to pay it.

That is why GST, far more than income tax, becomes an unofficial source of short-term finance.

The question is no longer whether GST is being used as working capital. The question is why so many otherwise viable businesses have reached the point where they feel they have little alternative.

A liquidity problem—not always a compliance problem

Most people assume unpaid GST is simply a compliance problem. The reality is usually more complicated.

GST debt is often not the underlying problem. It is the symptom of something earlier. Many businesses carrying GST debt are legitimate businesses. They employ staff. They pay suppliers. They contribute to their communities.

Many survived Covid only to confront inflation, rising interest rates, increasing wages, insurance costs and weaker consumer demand.

Eventually the margins disappeared.

The turnover remained. The cash did not.

Busy businesses are not necessarily profitable businesses. And profitable businesses are not necessarily liquid. Many businesses fail because they run out of cash long before they run out of work.

The compounding effect

Once GST falls behind, recovery becomes increasingly difficult.

Use-of-money interest accrues daily on the unpaid balance.³ It continues to accrue for as long as the debt remains outstanding. Current GST obligations continue while historic GST remains unpaid. Businesses are effectively trying to meet two GST liabilities at once.

It is not uncommon for an original GST liability of around $30,000 to become a debt exceeding $80,000 as use-of-money interest and continuing GST obligations accumulate.

That is how manageable cashflow pressure becomes a serious tax problem.

Why businesses delay

One aspect receives too little attention. Many business owners do not delay contacting Inland Revenue because they have no intention of paying. They delay because they are uncertain what will happen once they make the call. Some have had difficult experiences previously. Others have heard stories from accountants, advisers or fellow business owners who felt their circumstances were not properly understood.

Whether those perceptions are fair is almost beside the point. Perception influences behaviour. Businesses convince themselves they need another month. Then another. Eventually the discussion moves from resolving a manageable cashflow issue to responding to enforcement action.

Many of those conversations could have happened months earlier.

None of this diminishes the responsibility of business owners to contact Inland Revenue at the earliest opportunity. They should. Early engagement remains the best opportunity to resolve tax debt before it escalates.

The difficulty is that many businesses do not make that call until the debt has already become overwhelming.

Inland Revenue already has the information

This is where the discussion becomes more interesting. Inland Revenue is not observing these businesses from a distance.

It already receives GST returns, PAYE information, income tax returns, filing histories and payment records. Following its Business Transformation programme, Inland Revenue has publicly described itself as an intelligence-led organisation that uses analytical capability to direct its compliance and debt management activities.⁴

Its own Annual Reports recognise an important distinction between businesses that remain commercially viable but financially vulnerable and those that are no longer viable. In 2022, Inland Revenue reported proactively contacting around 1,350 businesses carrying approximately $356 million of debt to assess whether they had underlying issues affecting their ability to pay.⁵ The same reports make clear that the department seeks to assist viable businesses to continue trading while taking enforcement action against businesses that are no longer commercially sustainable.⁶

The policy question therefore is not whether Inland Revenue has access to the relevant information. It already does.

The question is whether that information can be used even earlier to identify businesses showing signs of genuine financial distress before GST debt becomes terminal.

That is not about weakening compliance. It is about improving outcomes.

Evidence also suggests that early engagement works. Inland Revenue has reported that relatively simple behavioural interventions, including well-timed text message reminders, increased on-time payments, increased entry into instalment arrangements and reduced enforcement activity.⁷ Internationally, both the OECD and the Australian Taxation Office have adopted analytical and behavioural approaches designed to identify emerging debt risk earlier in the debt cycle.⁸

A case for earlier rehabilitation

Inland Revenue already works constructively with many taxpayers experiencing temporary financial difficulty. That deserves recognition.

The Commissioner has consistently recognised the distinction between businesses that are viable but vulnerable and those that are no longer commercially sustainable.

The opportunity is not necessarily to create an entirely new system. It is to build on one that already exists.

Earlier identification of businesses showing signs of financial distress, combined with timely engagement and realistic repayment arrangements where recovery remains achievable, has the potential to improve compliance, preserve employment and increase long-term tax recovery.

Businesses that cannot realistically be rehabilitated should continue to move promptly through the existing enforcement process, including liquidation where appropriate.

That approach does not weaken the integrity of the tax system. It strengthens it by directing resources where they are likely to achieve the greatest public benefit.

Just as importantly, more business owners should know that these pathways already exist. Many delay engaging with Inland Revenue because they assume enforcement is inevitable.

Greater visibility of Inland Revenue's existing approach may encourage businesses to seek assistance while solutions remain available rather than after the debt has become unmanageable.

There is, however, another side to this discussion. Every business that pays its GST on time is entitled to expect that the rules are applied fairly. Many business owners manage difficult trading conditions without using GST as working capital. Any approach that supports viable businesses must not disadvantage those who have met their obligations despite facing the same economic pressures. Earlier engagement is therefore not about excusing non-compliance or providing preferential treatment. It is about identifying cases where timely intervention is likely to maximise recovery for the Crown while preserving businesses that remain capable of meeting their future obligations.

What advisers should be discussing

Every adviser working with small businesses should be having one straightforward conversation. Not once a business owes tax. Long before.

Separate the GST. Transfer it into a dedicated account as receipts are received. Review margins regularly. Understand that turnover is not liquidity.

If cashflow begins to tighten, seek advice before use-of-money interest becomes the dominant part of the debt.

These are not complicated ideas. But they require discipline.

The businesses experiencing serious GST problems are often not the ones that ignored professional advice. They are the ones who never sought it early enough.

An uncomfortable reality

Nobody celebrates using GST as working capital. It is rarely Plan A. Usually, it is the last available source of liquidity before something more serious happens. Billions of dollars of unpaid GST should not be viewed solely as a compliance problem.

They are also telling us something about business cashflow, shrinking margins and economic pressure.

The Crown is entitled to collect every dollar of tax lawfully due. Nothing in this article suggests otherwise. Some businesses require enforcement. Some deserve an opportunity to recover. The challenge is identifying the difference while recovery remains possible.

Inland Revenue has already developed many of the tools needed to make that assessment.

Building greater awareness of those tools and using them as early as practicable may produce better outcomes for taxpayers, better recovery for the Crown and a stronger economy.

GST debt rarely begins as a tax problem. It begins as a cashflow problem.

If we ignore that distinction, we will keep treating the consequence while missing the cause.

^Footnotes

1. ^{Inland Revenue, Tax and Entitlement Debt Statistics (updated 29 October 2025): GST debt of $3.3 billion and total tax and entitlement debt of $9.3 billion as at 30 June 2025.}
2. ^{Inland Revenue, Annual Report 2025, noting that overdue GST and employer-related debt is particularly prevalent among smaller businesses.}
3. ^{Inland Revenue, Use-of-Money Interest (debit rate 8.97% from 16 January 2026).}
4. ^{Inland Revenue, Annual Report 2025, describing Inland Revenue as an intelligence-led organisation using analytical capability to target compliance and debt management activity.}
5. ^{Inland Revenue, Annual Report 2022, reporting proactive engagement with approximately 1,350 businesses carrying around $356 million of debt to assess underlying viability and payment capability.}
6. ^{Inland Revenue, Annual Reports 2022 and 2025, discussing Inland Revenue's approach of supporting viable but vulnerable businesses while pursuing appropriate enforcement against businesses that are no longer viable.}
7. ^{Inland Revenue, behavioural insights trial (2022), reporting improved on-time payments, increased instalment arrangements and reduced enforcement following early text-message interventions.}
8. ^{OECD Forum on Tax Administration, publications on debt management and behavioural insights; Australian National Audit Office and Australian Taxation Office materials describing predictive analytics and business viability assessment in tax debt management.}

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*Dave Ananth is a principal at Meridian Partners, specialising in IRD disputes, enforcement, and student loan matters. His background, profile and contact details are here.