MPs’ pay rise pared back

Prime Minister John Key has announced an overhaul of the Remuneration Authority Act, tying MP salaries to those of the wider public sector, which will be passed under urgency.

Mr Key says the decision was made after the Remuneration Authority’s latest determination which saw the total remuneration received by MPs increased by about 3.5 per cent.

“That increase was neither necessary nor justified at a time when inflation is at 0.8 per cent,” says Mr Key.

“While the decision was made independently of MPs, they should not be receiving increases which are disproportionate to the wider public sector.”

Mr Key says the Remuneration Authority referred specifically to the criteria contained in the Remuneration Authority Act 1977 as the reason for the increases, therefore a law change was necessary.

The change will take away the Authority’s discretion when setting MP pay. The sole criteria will now be the average public sector pay increase for the previous year.

Mr Key says the decision to remove the Authority’s discretion was not taken lightly, given that it changed a practice going back several decades.

“However, it is clear that changing the criteria upon which that rate is set is the only way to ensure the Authority will start handing down more modest pay increases.”

The new legislation will be backdated to 1 July 2014, meaning the pay increase outlined in the latest determination will not be awarded.

Based on the most recent data, total remuneration will instead increase by something in the range of 1 – 2 per cent, reflecting average wage growth in the public sector.

Ministers anticipate more detailed advice from officials on the measure to be used, which will be set out in the legislation, likely to be introduced in the next sitting session.

There is always an uproar when MPs’ pay rises are announced but feelings were stronger about last week’s announcement when inflation is so low.

Continuing to say it was out of their hands was an untenable position for MPs when they had the power to change the legislation.

Acting to reduce the current pay rise is a good move but it would be better if changes to the legislation weren’t  done under urgency to allow public submissions.

 

MPs can change Act

One man I approached to see if he’d be interested in seeking selection as a candidate for National last year said he couldn’t afford to.

He was at a stage in his life where the drop in pay would be too big a hit for him and his family .

That could well be the reason some people don’t stand but many who do enter parliament get a pay rise and few leave to go on to higher paying careers.

That is one of the reasons the news of MPs’ pay rises are met with such outrage although pay should be for what they are actually doing rather than what they did before, or might do after they leave, parliament.

On that basis some are underpaid.

My MP Jacqui Dean, for example serves and services well the country’s third largest general electorate, Waitaki. She is a select committee chair (for which she is paid a little more) and a parliamentary private secretary (which attracts no extra pay) and she’s also co-chair of the Rules Reduction Taskforce.

There is no question that she works hard and substantial increased majorities in successive elections indicate her constituents recognise this.

That can’t be said for all MPs.

Can anyone name more than one or two of the sycophants who are in parliament on New Zealand First’s list let alone provide evidence they do much to earn their salary?

Remuneration Authority members aren’t tasked with what individual MPs do. Salaries are set not on individual performance but the positions they hold so a hard working and effective MP gets the same as a slacker.

In announcing increased pay rates for MPs the Authority said:

The Authority continues to use a total remuneration approach in setting the base salary for members, as it does for other groups for whom it sets pay. The Authority takes as its starting point its payline for public servants undertaking jobs with broadly similar complexity and responsibility. That enables it to identify a total remuneration package, based on market rates, for ordinary members. The Authority then deducts from that total package the value of the employer superannuation subsidy to members (20% of an ordinary member’s salary) and the personal benefit of entitlements to members and their families (as assessed by the Authority). The figure remaining after these deductions from the total package becomes the base salary. If an individual member chooses not to take advantage of one or both of the entitlement and superannuation payments, his or her base salary is not increased.

1.5 The same approach is not taken with senior positions in Parliament, including the Prime Minister, Ministers, the Speaker, the Leader of the Opposition, Party Leaders, and so on.

1.6 In recognition of the significant element of public service given by those serving in the Executive and in senior roles in Parliament, democracies like our own have traditionally significantly discounted the rate at which their leaders have been materially rewarded, and those aspiring to those positions have accepted such a discount. The rates for these positions are not set based on market rates or the Authority’s general payline, but maintain previous relativities established over many years and reinforced when parliamentary remuneration was fully reviewed in 2001/02. . .

In 2014, the Authority’s payline at the level for ordinary members increased by 3.3%. For this year, the personal benefit of the travel entitlement to members and their families has been assessed at $3,200 per member, a reduction in the amount assessed in previous years, which takes into account tightened provisions around the personal use of travel by family members. Taking into account the change in value of the travel entitlement, this produces a package increase of 3.56% and a salary increase for ordinary members of 5.5%. . .

Which market rates the Authority took account of to get a package increase of 3.5%, and a salary increase for ordinary members of 5.5%, which takes into account the decrease in travel allowances, when inflation is so low isn’t clear, especially when the PM wrote requesting no increase at all:

. . . He told reporters this morning that he wrote to the Remuneration Authority early this year urging it not to give MPs a pay rise at all this year, but the authority had given them a pay rise anyway.  . .

He wants the Authority to review its system:

“What I think the Remuneration Authority should do, if they are going to give a pay increase to MPs, is I think they should point to the law and tell us what in the law is driving the sort of increases that they want to give MPs, and then we should go away and consider whether we think that law is appropriately set,” he said.

“In my view it’s quite clear that inflation is low, that MPs are by any measure well recompensed, and against that the Remuneration Authority has had the view that ministers are a long way away from chief executives and to other senior people in the private sector.

“But you don’t go into politics and become either a minister or a prime minister, or even a backbencher, because you are there for the money. If you do you are there for completely the wrong motivation, so I just don’t think that’s a relevant comparison in my view.” . . .

An Act of Parliament governs how MPs’ remuneration is set and therefore it is in MPs’ power to change it.

David Farrar has been suggesting sensible change for some time:

. . .On multiple occasions I have submitted that the law should be changed so that the Remuneration Authority sets salaries for an entire parliamentary term, rather than annually. There is no need for annual adjustments in a low inflation environment. They should be set three months before each election and apply for the whole term. . .

That wouldn’t change the howls of outrage every time there is a pay increase.

But it would set a good example when inflation is low and provide an incentive for keeping it low.

MPs pay better set triennially

Patrick Gower thinks MPs’ pay should be subject to annual taxpayer review.

That might be popular but it would also be difficult to do without bias when not paying them at all would probably find favour with many.

Most MPs I know more than earn their pay, some would be underpaid at twice the current rate and a few would be overpaid at half.

While MPs’ remuneration is an easy target there are a lot more expensive ones that taxpayer review could address.

Neither review is going to happen and even though Prime Minister John Key thinks MPs don’t need a pay rise the annual review by the remuneration Authority is almost certain to recommend one.

Whenever it’s announced and whatever it is will be criticised.

David Farrar has suggested a better way of doing it – setting the pay rate triennially, with any changes taking place after an election.

MPs and the public would know where they were before the election, it would save the cost of annual reviews and would put an end to the annual cheap shots about pay rates which hit all MPs, whether they’re over paid or not.

Change system & incentivise low inflation

The Remuneration Authority has recommended a small increase in pay for MPs and that has resulted in the usual carping:

While Christmas is still grim financially for many New Zealanders, politicians – who earn nearly three times the average wage – are about to pocket even more. . .

Good MPs are worth far more than they get.

I have some idea of the challenges my MP Jacqui Dean faces servicing an electorate which covers an area of 34,888 square kilometres as well as chairing a select committee and she more than earns her salary.

Others are overpaid for the little they appear to do but the system doesn’t differentiate for performance, or lack of it.

It’s no use criticising the MPs for the pay increase, the Remuneration Authority is an independent body.

But I would support the change in the system suggested by Kiwiblog :

. . . The easy way to solve this, is what I have long advocated – set the salary and associated terms around three months before each election, for the next term of Parliament.

So MPs would get elected to Parliament for a term, on a known salary which remains constant during that term. . .

That’s simple and fair.

It has the added advantage of incentivising MPs to keep inflation low so they don’t lose the real value of the salaries.

 

 

Economic conditions to influence salary decisions

The Remuneration Authority will be required to take economic conditions into account when setting salaries for MPs and other professions for which it is responsible.

Minister of Labour Kate Wilkinson said:

This year MPs from all political parties and others including the Governor-General were willing to forgo a pay increase but the Remuneration Authority could not take account of the recession in its decision.

“This Bill will allow the Authority to balance wage rises against the economic conditions of the day,” Ms Wilkinson says.

“It seems sensible to allow the Authority to act with greater flexibility when it’s required.”

The Remuneration Authority is independent and should remain so but this legislation will enable it to factor economic conditions in to its calculations.

The Bill is designed to allow the Authority to respond  with restraint to tough times. I hope there is no danger it will also be able to respond more generously than it would have to boom times.

Setting salaries for MPs is fraught with difficulty. Good MPs are underpaid, a few will be overpaid.

We’ll never know who is put off a political career because the pay is too low or who is attracted to it because of the salary;  we’re also unlikely to know which MPs get a pay rise and which take a cut when they enter parliament.

The Authority has to determine a rate which doesn’t discourage able people who would lose too much if they entered parliament when there is no private sector equivalent with which direct comparisons can be made. It must also take into account that there is a large element of public service in the position.

Adding the requirement to consider economic conditions won’t make their task any easier but it might make the result of their deliberations more palatable to the public.

It’s not their money

 Does Meridian Energy realise what it’s saying?

Increasing power prices now would shield customers from large increases if and when planned schemes came about: “Small increases provide a smoother path for consumers.”

 Is it the job of a power company to “provide a smoother path for consumers”?  That sounds like they think  they’re better able to manage our money than we are.

My concern is increased because of the proviso “if and when planned schemes come about”

What happens if planned schemes don’t come about, will we get our money back, with interest?

And how much more power generation do we need? The reduction in production at the Tiwai aluminium smelter means there is considerably less demand for power than there has been for some time.

The Remuneration Authority has a similar line  with regard to local body pay rates:

Authority chairman Richard Oughton, in the circular, said some local bodies were considering not increasing pay.

He said the increase from July 1 was conservative, somewhat less than it should be based on market conditions.

“A zero increase could create a situation where a larger, and perhaps less publicly acceptable, adjustment may be needed from July 1, 2010.

Further postponing an adjustment at that time would only serve to exacerbate the problem,” he said.

 He too is saying that a lower increase now will mean a bigger increase later.

I think ratepayers would prefer to keep a little more of their own money now and worry about how acceptable future pay increases are when the time comes. 

The government is sending very strong messages about the need for restraint so it’s possible that the pubic and private sector salaries on which councillors’ remuneration is based may show little or no increase in the short to medium term.

That would mean the big increase that Oughton is concerned about may not eventuate anyway.

If it does, at least we’ll have had a wee bit more of our own money under our own control in the meantime.

We deserve pay rise

Oh dear, if there’s a phrase that politicians should never utter it’s “we deserve a pay rise” and to be fair, the mayors interviewed by the Southland Times  didn’t put it in exactly those words.

Queenstown-Lakes mayor Clive Geddes said:

“My own view, not speaking for myself but speaking for the councils and community chairs in this district, is that their remuneration is significantly below the effort and contribution they make.”

Central Otago mayor Malcolm Macpherson said:

. . .  in my view people who do the sort of work that rural authority mayors do are pretty much underpaid as it is.

And Southland District mayor Frana Cardno said:

. . . Our councillors earn a pathetic amount that wouldn’t even cover the costs of them leaving their work for the day . . .

I suspect they all have a point, that council pay is less than fair compensation for the time and effort good councillors put into their work.

But ratepayers hearing their elected representatives saying they deserve a pay rise are unlikely to be swayed by this when facing yet another increase in rates which is well above the rate of inflation.

It doesn’t matter that concillors’ pay is a tiny part of the total rates bill and their pay is set by the Remuneration Authority over which they have no control. Ratepayers almost certainly think their case for lower rates is stronger than the coucillors’ one for higher pay and are likely to respond to mayors saying they deserve a pay rise by offering them a Tui.

However, the debate raises two bigger issues – the growing rates burden and the method for setting the politicians’ pay.

Kiwiblog  thinks the Remuneration Authority should set MPs’ salaries for a whole three year term. I agree and would like the same system used for local body politicians.