As part of forming the 2023 coalition government, NZ First and National agreed to assess the impact inflation has had on the average tax rates faced by income earners. The commitment reflected NZ First's long-running argument that "fiscal drag" (also called bracket creep) quietly raises the share of income people pay in tax, and signalled a possible move toward indexing tax thresholds to inflation. NZ First has backed indexation for years; National adopted the idea more recently.

Budget 2024 raised the three lower income tax thresholds for the first time since 2010 (the 10.5% band top from \$14,000 to \$15,600, the 17.5% top from \$48,000 to \$53,500, and the 30% top from \$70,000 to \$78,100). It was a one-off adjustment rather than automatic indexation. The same Budget gave Inland Revenue \$29 million a year (2024-25 to 2027-28) to expand audits, chase overdue debt and pursue overseas-based borrowers, an investment officials expected to more than pay for itself.

Two years in, the audit half of the policy is producing results while the tax-relief half remains a stated intent. Reporting put total overdue tax debt at about \$9.3 billion as at 30 June 2025, with Inland Revenue applying for a rising share of company liquidations, named by commentators including Andrew Dickeson of Baker Tilly Staples Rodway as a marked shift from the pandemic-era supportive stance. On fiscal drag, the commissioned assessment confirmed the average tax rate sits about 1.65 percentage points higher than full indexation would imply, but the coalition has not legislated automatic indexation. Treasury has cautioned that fiscal drag helps fund government and that removing it would need spending cuts or other revenue, suggesting a capital gains tax as one option, a stance NZ First has not endorsed.

Inland Revenue said its compliance work returned \$11.81 for every \$1 spent in 2024-25, up from \$9.50 the year before, with debt recovery returning \$53.08 per \$1. It reported \$1.4 billion collected through compliance interventions against a \$1.038 billion target, and \$4.3 billion in cash recovered from debt activities, its highest since 2018. Budget 2025 had added a further \$35 million a year of permanent funding. Supporters framed the spend as making the system fairer by ensuring tax avoiders pay their share.

As Inland Revenue's enforcement ramped up, tax practitioners raised concerns. A survey by Chartered Accountants Australia and New Zealand and Tax Management New Zealand reported that some auditors were seen as lacking commercial experience, and tax consultant Terry Baucher noted a loss of long-serving staff meant a loss of experience. Agents also worried that small debts were chased hard while larger ones drew less attention, and that company liquidations driven by Inland Revenue had climbed to a 15-year peak. Baucher's broader point was balanced: he said taxpayers who engage early usually get more manageable outcomes than they fear.

Online reaction splits along familiar lines: many welcome cracking down on unpaid tax and ending "bracket creep", while small-business voices and some accountants worry about heavier-handed audits and rising liquidations, and others doubt the coalition will ever deliver full threshold indexation.

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