New Zealand’s Social Security Conventions: Merely Double Taxation Agreements In Reverse?

Abstract

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 most important SSCs New Zealand has negotiated are the ones with Australia and the UK because of the substantial migration flows between New Zealand and these two countries. Both these SSCs are very different to the other six negotiated in the 1990s which is probably because New Zealand entered into these SSCs long before it decided to provide general portability of New Zealand Superannuation to other countries. 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 has its own issues due to 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 with Australia is unusual in that it may leave New Zealand retirees resident in Australia much worse off than if they had claimed New Zealand Superannuation under the general portability provisions and retired elsewhere. The SSC also has significant fiscal risks to New Zealand if large numbers of Australians decide to retire in New Zealand. The general portability provisions have a Pacific Islands option which is generous to Pacific Islanders who can retire back to their countries of origin with New Zealand Superannuation at full rates free of New Zealand tax after 20 years of New Zealand residency. When the Social Assistance (Payment of New Zealand Superannuation and Veteran’s Pension Overseas) Amendment Bill 2009 is passed, the general portability provisions for other countries will be closer to the provisions for Pacific Island portability, however, a much longer period of New Zealand residency will be required for overseas payment of New Zealand Superannuation at full rates. The general and Pacific Island portability provisions can also be criticised on grounds that the payment of New Zealand Superannuation overseas without any deduction of New Zealand tax is unfair when the benefit is fully taxable when to paid to retirees living in New Zealand. Both portability provisions can also be criticised on equity grounds that they may place retirees to Pacific Island and other countries in a much better position than those who retire to Australia and have payment of New Zealand Superannuation denied to them under the Australian SSC.