Dunne's Weekly: MPs Unusually Quiet On Pay Rise

It is one of the oldest truisms that there is never a good time for MPs to get a pay rise. This week’s announcement of pay raises of around 2.8% backdated to last October could hardly have come at a worse time, with the economy on the brink of recession, massive cutbacks in public expenditure, public sector redundancies and rising unemployment.

Yet the response from MPs to the decision of the independent Remuneration Authority has been unusually muted. Even those who might have been expected to be more outspoken and prone to grandstanding on the issue of MPs’ pay have so far been restrained in their responses.

A factor in this may be that MPs salaries and allowances have been frozen by Prime Ministerial fiat since 2018. Yet according to Statistics Department figures, average household income has risen by just over 19% in that time. The increase in the average cost-of-living is estimated to have been over 13% for the last two years alone. Even though their incomes are higher than the average, MPs and their households will not have escaped the impact of these increases.

Labour leader Chris Hipkins has correctly (and courageously, given the way she is still idolised in some quarters) said the freeze on MPs salaries and allowances Dame Jacinda Ardern instituted in 2018 and renewed in 2021 was a mistake, which has led to the current level of increases proposed by the Remuneration Authority. Hipkins properly says these decisions should always be left to the Authority, and not interfered with by politicians. He is right.

Until the mid-1970s, politicians set their own salaries. Since then, the responsibility has been delegated to an independent statutory authority, now called the Remuneration Authority to determine what MPs should be paid, according to clear criteria that have been set out in legislation. This is designed to ensure that the process is transparent and free from any direct political intervention.

By and large it has worked well over the years, although there have been occasions when successive governments have felt the need to interfere with Remuneration Authority decisions because they have been seen as politically unpalatable at the time. The Ardern interventions are the latest, but no means the only, occasions where the meddling of politicians has made the situation more complex in the long term.

At present, the Authority is required to review MPs salaries and allowances at the start of a Parliamentary term and set a rate that will apply for the balance of that term. What has complicated its work this time around has been the six-year freeze since 2018, and the need for a catch-up to address that. It is arguable that this year’s proposed increases would have been smaller, had salaries and allowances been adjusted, not frozen, in 2018 and 2021.

MPs have always indulged in a measure of double-talk when it comes to increases in their salaries. Previously, there have been MPs who have attempted to make a virtue out of publicly declining to accept their pay rise. However, as Inland Revenue advised me when I was Minister of Revenue, MPs do not have the option of declining a salary increase. Because the rate is set by a statutory determination, they are taxed for that rate of income, regardless of whether they accept it or not. Faced with that prospect, most of the grandstanders over the years apparently quietly acquiesced.

Learning the lesson of his housing allowance embarrassment, Prime Minister Luxon has said he will donate his increase – around $50,000 over the next three years – to charity, because he says he does not need it. Fair enough, but he will still be taxed on that income. However, he will be able to claim the charitable donations rebate of 33% on any donations he makes!

So far, there have been no suggestions of the government intervening to prevent or limit the Remuneration Authority’s decisions. The immediate reactions of MPs suggests that they may be more prepared to adopt a “take it on the chin” approach (a cynic might say, take the money and run) and let the process run its course. In any case, the adverse public reaction to MPs’ pay rises has always been short-lived and seldom deep-seated.

Overall, the Remuneration Authority’s decisions are not excessive and reasonable in the circumstances. They send the clear message that they can be trusted to make responsible determinations, and do not need the interference of politicians to do so.

In that respect, the Authority has set a benchmark which future Parliaments which would be wise to abide by.

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