Chapter 6 Agreement between Australia and the Republic of Latvia on Social
Security
Introduction
6.1
On 22 November 2011, the Agreement between Australia and the Republic
of Latvia on Social Security done at Riga on 7 September 2011 was tabled in
the Commonwealth Parliament.
6.2
Under the proposed Agreement, individuals may be
eligible for benefits from both countries if they meet certain criteria and
have lived and/or worked in both countries. Residents of Australia and Latvia
will be able to move between these countries knowing that their rights to
benefits are protected.[1]
Background
6.3
Australia’s social security agreements are bilateral treaties which
close gaps in social security coverage for people who migrate between
countries. The agreements do this by overcoming barriers to pension payment in
the domestic legislation of each country, such as requirements on citizenship,
minimum contributions or past residence history, and current country of
residence.[2]
6.4
Australia’s network of bilateral social security
agreements improves access to income support for people whose adult lives are,
or have been, split between Australia and another country. Most beneficiaries
are age pensioners.[3]
6.5
This Agreement incorporates the same principles
as Australia’s other social security agreements. A key element of this
Agreement, as with other social security agreements, is the sharing of
responsibility between both countries in providing adequate social security
coverage for current and former residents.[4]
6.6
This treaty action follows on from a series of
similar bilateral social security agreements. Recent agreements have centered
on Eastern European countries, from which Australia accepted a significant
number of refugees in the decades following the Second World War.[5] The countries have included:
n Hungary
(examined by the Committee in Report 120);
n Austria
(see Report 115);
n The
Czech Republic (see Report 112);
n the
Former Yugoslav Republic of Macedonia (see Report 112);
n Poland
(see Report 108 and Report 110); and
n Slovakia
(see Report 117).
6.7
The agreement is an important addition to this existing network of
social security agreements. Currently Australia has 28 agreements and this
would be the 29th agreement when implemented.[6] Currently, inside
Australia there are about 145,000 people receiving a foreign pension
entitlement through an agreement. Australian pays nearly 60,000 people
overseas an agreement pension.[7]
Overview and national interest summary
6.8
The proposed Agreement provides for improved access to
Australian and Latvian retirement benefits and greater portability of these
benefits between the two countries. Improved access to benefits is an
underlying principle of bilateral social security agreements where the
responsibility for providing benefits is shared. Under this Agreement,
residence in one Party’s territory will not affect a person’s entitlement to
benefits under the legislation of the other Party. People who move between
Australia and Latvia will be able to do so in the knowledge that their rights
to benefits are recognised in both countries.[8]
6.9
The proposed Agreement will facilitate business by ensuring employers
and employees do not have ‘double liability’ in respect of the same work of an
employee. For example, when an employee from one Party is temporarily seconded
to work in the other, the employee and/or their employer will not need to make
compulsory pension or superannuation contributions in both countries. In the
Australian context, the proposed Agreement will exempt employers and/or
employees already making superannuation guarantee contributions in Australia,
from making compulsory social security contributions in Latvia and vice-versa.[9]
6.10
The proposed Agreement will bring economic and social benefits to
Australia and facilitate business links by reducing costs. It
will help to maximise the foreign income of Australian
residents and there will be flow-on effects within the Australian economy. The
Agreement will serve to reinforce Australia’s political, business and strategic
interests. It will also further strengthen bilateral relations between
Australia and Latvia and provide choices in retirement for individuals who
migrate to Australia or Latvia during or after their working lives.[10]
Reasons for Australia to take the proposed treaty action
6.11
The Agreement will provide substantial net pension
flows into Australia. The Department of Families, Housing, Community
Services and Indigenous Affairs (FaHCSIA) estimates
that, in the first year approximately 2,000 people in both countries will claim
an Australian and/or Latvian pension. This is expected to increase ongoing
Latvian pension flows into Australia by around $4.3 million per year and
increase ongoing Australian pension flows into Latvia by approximately $0.2
million per year. This will result in Australian pension outlays decreasing by
around $1.1 million over the forward estimates period.[11]
Obligations
6.12
Part I sets out general provisions and defines the
scope of the proposed Agreement. Parties are obliged to ensure equal treatment
of people covered by the proposed Agreement, with respect to eligibility for
and payment of benefits. [12]
6.13
Part II concerns provisions on applicable
legislation, and includes provisions to avoid double liability.[13]
6.14
Part III applies to benefits payable by
Australia and:
a) obliges
Australia to regard residents of Latvia, and Australian residents who are
temporarily in Latvia, as Australian residents and as being present in
Australia, for the purpose of claiming the Australian Age Pension, provided the
person has been a resident of Australia at some time;
b) provides
that insurance periods in Latvia (being periods of contributions used to
acquire the right to a benefit under Latvian legislation, or periods deemed
equivalent) will be regarded as periods of residence in Australia for the
purpose of meeting any minimum qualifying period of residence for the
Australian Age Pension and;
c) specifies
how the rate of the Australian Age Pension will be calculated under the
proposed Agreement and how this applies to a person who is living inside or
outside Australia.[14]
6.15
Part IV applies to benefits payable by Latvia.
Periods of Australian working-life residence and Australian residence will be
taken into account in Latvia for the purpose of meeting minimum insurance
periods under Latvian legislation, provided the periods do not overlap with the
person’s insurance period accumulated in Latvia. The rate of pension from
Latvia will generally be based on a person’s insurance period accumulated in
Latvia[15]
6.16
Part V sets out various administrative
obligations.[16]
6.17
Part VI concerns transitional and final provisions.[17]
Implementation
6.18
The Social Security (International Agreements) Act 1999 gives
effect in domestic law to relevant provisions of social security agreements
that are scheduled to the Act. A new Schedule containing the Agreement’s full
text will be added to the Social Security (International Agreements) Act
1999 pursuant to that Act’s regulations.[18]
6.19
Provisions of social security agreements relating to double
superannuation coverage are automatically given effect in domestic law once
agreements are scheduled to the Social Security (International Agreements)
Act 1999. This happens pursuant to section 27(1)(e) of the Superannuation
Guarantee (Administration) Act 1992 and regulation 7AC of the Superannuation
Guarantee (Administration) Regulations 1993, which together provide that
payment of salary or wages to an employee who has been sent temporarily to work
in Australia will not give rise to a superannuation guarantee obligation for
the overseas employer, provided that a relevant scheduled social security
agreement is in place.[19]
Costs
6.20
The proposed Agreement was funded in the 2009-10
Budget at a net cost of $1.3 million over the forward estimates period. It is
expected to reduce ongoing pension outlays by around $1.1 million.
Departmental costs incurred by FaHCSIA, the Department
of Human Services (Centrelink) and the Australian Taxation Office (ATO) total
$2.4 million over the forward estimates period, and are primarily one-off
set-up costs.[20] FaHCSIA
explained:
The start-up costs involve FaHCSIA costs for negotiating the
agreement for monitoring and going through the processes, Treasury costs for
the double coverage area and of course the Department of Human Services through
Centrelink for processing all of the claims and contacting people and also
carrying out investigations into those claims.
[21]
6.21
FaHCSIA also noted that while agreements between
Australia and different countries may be similar, the bureaucratic mechanisms
are not, and this may result in different start up costs for different
agreements.
There is additional staff depending on the size of the
agreement and the number of people who were required to process the new
claims. Obviously Centrelink would need to make adjustments to their IT
infrastructure with each new agreement coming on-stream. There are different
forms that are required and there are different issues because the systems are
different. They are not the same system. It is not as though we are just
plugging them into every European country. Every country has slightly different
quirks to the system. It is not as easy as just saying, 'Here is another
agreement; switch it on.'[22]
Conclusion
6.22
The Committee supports the proposed social security agreement with
Latvia. Bilateral agreements of this type provide reciprocal benefits to
individuals with ties to both nations, whether gained through permanent
migration or temporary secondment. The Agreement would optimise choice in
retirement and increase retirement incomes and may also create opportunities
for greater economic engagement between our two nations.
Recommendation 8 |
|
The Committee supports the Agreement between Australia
and the Republic of Latvia on Social Security done at Riga on 7 September
2011 and recommends that binding treaty action be taken. |