New IRD system costs $1b

Inland Revenue has warned the Government it faces a billion-dollar bill to replace its ageing First mainframe computer system.

In a briefing to Revenue Minister Peter Dunne, Inland Revenue estimated the cost at between $1 billion and $1.5b and said the project could not be put off. It is not clear how much of that cost would be spent internally by Inland Revenue and how much would go to outside suppliers.

First was built at a cost of $201m in 1991 and replacing it will be by far the largest information technology project undertaken by the public sector, dwarfing the failed $100m police Incis project and similar-sized initiatives now under way to replace "legacy" systems at Customs and Immigration New Zealand.

While it may be the IT bill from hell, Dunne said it came as no surprise "given the enormity of the task involved" and the increased scope of Inland Revenue's responsibilities.

Inland Revenue said the spaghetti-like First system was commissioned when "Microsoft was a start-up and there was no internet".

As well as managing the tax system, it also underpins Working for Families, KiwiSaver and the management of student loans and child support payments. The system affects virtually everyone in New Zealand.

The department warned that until work on replacing First was underway, it would have little ability to make changes to the tax system and other services that hang off it.

That was because careful testing was required for every modification to its software.

"It is like a house full of appliances connected to electricity by a cable full of intertwined wires. When you change or disconnect one wire it can be difficult to tell what appliances in the house will be affected."

Inland Revenue took its first baby step to wean itself off First in 2010 by attempting to switch the management of student loans to a more modern system based on software from United States company Oracle. The student loans system was to have been the first cab off the rank, to be followed by the wider adoption of Oracle's Enterprise Tax Management software across the department.

However, it ran out of time to develop the system before planned law changes take effect this April and it shelved the project in May, writing off the $21m it had spent and opting instead to modify First.

Commissioner Robert Russell told a select committee in 2010 that Inland Revenue envisaged "breaking new ground" by becoming the first tax authority in the world to deploy the Oracle software suite "across all our array of responsibilities over the next several years". That project could still be revived.

Dunne said a "robust examination of all alternatives was critical but it is inevitable [that] substantial new investment will be required over the next decade".

The Dominion Post