New Zealand’s Social Security Conventions: Merely Double Taxation Agreements in Reverse?
Andrew M. C. Smith
Victoria University of Wellington - School of Accounting and Commercial Law
April 10, 2010
In common with many countries, New Zealand provides a comprehensive range of social security benefits for its residents. As New Zealand has traditionally been a country that attracts migrants and, more recently, a source of migrants for other countries, cross-border issues relating to social security benefits are an important issue both for the individuals concerned and also the New Zealand Government. It is for this reason that many countries, including New Zealand, have entered into bilateral treaties (known as “social security conventions” or SSCs) to coordinate the provision and funding of social security benefits across borders. Because SSCs are international treaties, they have implications not only for those individuals who fall within their scope, but also for the governments who are signatories to them.
The two most important SSCs New Zealand has negotiated are the ones with Australia and the UK. Both these SSCs are very different to the other six negotiated in the 1990s which is probably because negotiated prior to the decision to introduce the general portability provisions for New Zealand Superannuation. As a consequence, the benefits payable under these two SSCs to New Zealanders who retire in Australia or the UK may be less than what is payable now under the general portability provisions for New Zealand Superannuation. In this respect SSCs differ from double tax agreements (DTAs) which are usually invoked to provide relief for a taxpayer and do not make a taxpayer worse off.
The coordination of social security benefits with Australia is also problematic because of the free movement of labour between the two countries under the trans-Tasman Travel Arrangement and also because Australia has adopted retirement income policies that are substantially different to New Zealand’s. The SSC also has significant fiscal risks to New Zealand if large numbers of Australians decide to retire in New Zealand.
Despite changes enacted in late 2009, there continue to be a number of equity issues with international aspects of New Zealand Superannuation both within and outside the scope of SSCs. Persons retiring to the Pacific Islands can receive New Zealand Superannuation there at full rates free of New Zealand tax after only 20 years of New Zealand residency. Persons retiring to other countries may require a much longer period of New Zealand residency to receive New Zealand Superannuation at full rates and in some cases may receive nothing due the impact of a SSC. There also continue to be considerable inequities arising under the deduction policy for those retiring in New Zealand with foreign pensions.
Number of Pages in PDF File: 39
Keywords: Double Tax Agreement, Social Security Convention, Totalization, Pensions, Superannuation
JEL Classification: H55, K34
Date posted: May 2, 2010