Proposed social security agreement with the
United States
The
former New Zealand government announced in June 2008 that it was undertaking work to facilitate the conclusion of a social security agreement with the
United States.
One of the major obstacles in the way of such an agreement is that American citizens seconded to work in
New Zealand are currently subject to double social security taxation: by paying full taxes in
New Zealand, seconded workers make social security contributions in
New Zealand as well as in their country of origin.
The Superannuation Review report delivered to Cabinet in 2004 outlines a means by which this double taxation could be relieved, thus bypassing the obstacle to an agreement with the
US. The report advises giving American secondees a rebate:
“One way of offering social security tax relief is to calculate NZ Super expenditure as a proportion of total taxable income. Using data from the 2002/03 financial year, this is found to be equivalent to a rebate of 8% of the secondee’s taxable income.”
Rebates offered as part of a social security agreement concluded with the
US would become a legal quagmire.
If the
New Zealand government is arranging to provide US citizens (or any other foreign nationals) seconded to work in
New Zealand tax rebates of 8% in lieu of social security benefits, equity demands that similar rebates are offered its own citizens whose NZ Super is withheld. Continuing to deny
New Zealand citizens retirement benefits while providing social security contribution relief to foreign workers will raise serious legal questions.
The former government’s primary purpose in seeking a social security agreement was to have the US subsidize New Zealand's retirement program - to the tune of $10 million per year.
The report points out that the tax revenue foregone by offering social security tax relief (estimated to rise to $4 million in 2010/11) can easily be recouped by other consequences of a
US social security agreement:
“There is a potential for
New Zealand to gain savings through a reduction in NZ Super expenditure. If
New Zealand offers a social security tax relief to US secondees, the
US will pay social security benefits into
New Zealand (which can then be directly deducted from recipients’ NZ Super). Under a social security agreement, the
US would also release the details of all
US social security payment recipients, which would ensure that recipients would not be able to evade the direct deduction from their NZ Super. We estimate savings of approximately $10.2 million in 2010/11.”
The
New Zealand government’s refusal to date to abandon the direct deduction policy makes it clear that its interest in obtaining a social security agreement with the
US is driven not by cost-sharing principles but rather by the desire to reduce this nation’s superannuation costs at the expense of American citizens.
Such an agreement would mean that beneficiaries whose monthly
US social security payment is equal to or greater than the monthly payment of NZ Super would receive nothing from the
New Zealand government regardless of the number of years they have worked and paid taxes in
New Zealand.
Many American citizens resident in
New Zealand would consider requests to the Social Security Administration to release their personal details to be an unnecessary and unwelcome invasion of their privacy, and the presumption by
New Zealand officials of evasion/lawbreaking to be highly offensive.
Any attempt by a
New Zealand government to manipulate American authorities into subsidizing
New Zealand's retirement program would only further reinforce the international perception of
New Zealand as a social security bludger.
Home