Bryce Edwards: Lifting the MP pay freeze – how much are politicians worth?

Bryce Edwards: Lifting the MP pay freeze – how much are politicians worth?

The Prime Minister currently gets paid $460K – about nine times the average wage. Other politicians receive less, but still magnitudes more than the average working citizen. So, are politicians paid too much, or do we need high pay to attract quality representation?

The debate about politician pay has been reignited by the decision of the Government this week, supported by Parliament, to lift the pay freeze on their salaries and adopt a new mechanism for deciding MP pay increases. And alongside this issue, are questions about how much politicians deserve to be paid, and whether it’s a problem that they’re in the top one per cent of income earners.

The freeze on MP pay increases was introduced a year ago to universal acclaim. Jacinda Ardern explained it was “the right thing to do”, citing the need to make New Zealand a more equitable nation. And it came after the Independent Remuneration Authority had recommended the politicians get a 3 per cent salary increase.

Not only were big pay increases embarrassing, at the time the pay freeze was announced the Government was in the midst of difficult negotiations with a number of public servants, and was trying to limit their pay claims. It was difficult for the politicians to call for restraint from lower paid workers when their own salaries seemed to be skyrocketing.

I covered the issue at the time – see: How much should we pay politicians? As well as explaining the various debates about politician pay, it pointed to arguments for retaining the MP pay freeze indefinitely, with some commentators cynical that the politicians’ decision was a temporary one to get them out of a tight spot with workers wanting higher pay themselves.

A year later, it seems, with those wage claims settled, the politicians feel free to get the ball rolling again, and have ended the pay freeze. This is explained in Boris Jancic’s article, Government introduces new rules to slow pay rises for politicians.

Essentially, new legislation will give full control over MP pay increases back to the Remuneration Authority, which the Government says is best placed to determine the pay of MPs. This reverses a decision made by the John Key Government in 2015, which apparently unsuccessfully sought to limit pay increases.

As the article explains, “The Government will now introduce a bill reverting the system back to its pre-2015 state, meaning the authority will make its decision in a similar way it does for other key public office holders.” The new system will also be less embarrassing for MPs because the decisions on pay will happen only once every three years instead of annually.

While National has agreed to support the change, the Greens and Act are less impressed. Green co-leader Marama Davidson said the new system was still too generous to politicians: “It’s not good enough for MPs’ salaries to get further and further way from what the rest of the country and our citizens are earning, so we’re going to be really loud about that” – see RNZ’s Iain Lees-Galloway thinks new MP pay setting will be more acceptable to public. According to this article, “Davidson said changes were made in 2015 for a reason – and the Greens wanted to see a dollar amount increase in line with the median wage.”

Rightwing blogger, David Farrar, seemed to agree that the new pay scheme would do the opposite of what was being claimed by Labour, and might actually deliver big pay increases – see: Government announces potential big pay rises for themselves!

Here’s Farrar’s main point: “This is wonderful double speak. It means that they may now get massive pay increases rather than ones restricted to the median wage movement. Under the law passed by National MPs would get a mere 2.1% pay rise in 2019 – as that is how much the median public sector wage has gone up. Under Jacinda’s law, they could get a lot more.”

He also points out how much the PM’s salary went up under Labour’s system when Helen Clark was in power: “It went from $222,400 to $393,000 – an increase of $170,600. That is a 76.7% increase over nine years. The median public sector increase was 45.6%. So the increase would have been around $70,000 less over nine years.”

Herald political journalist Claire Trevett has expressed some sympathy for the politicians, explaining the various changes over the years in MP pay setting, which were all meant to stop excessive increases: “While most workers want higher pay increases and battle to get them, politicians want lower pay increases but are finding the job of getting them to be a Sisiphyean task” – see: PM Jacinda Ardern’s crusade for smaller pay cheques (paywalled).

Trevett actually gives the best short summary of the what has been going on: “in 2009, Key legislated to require the Remuneration Authority to take economic conditions into account when setting the pay. That did not work to his liking, so in 2015 he ordered the authority to scrap the criteria it had always used and instead peg MPs’ pay to the average increase in the public sector. Alas, it transpired that the public sector got rather more generous pay increases than Key expected and as a result, so did MPs. Now Prime Minister Jacinda Ardern has decided to have a go as well – by returning to the system Key ditched because it was proving too generous. That leaves the Remuneration Authority to set the pay using the same criteria it had used before Key scrapped it.”

The problem is, Trevett says, “Ardern may well now find that the Remuneration Authority decides it has to give MPs a bigger-than-usual pay increase over the next year to make up for the 18-month pay freeze.”

Of course, the whole exercise shows the difficulty of finding the right mechanism for pay increases. University of Auckland employment law expert Bill Hodge explains: “It is a hard thing to do because there isn’t technically an employer who can do an annual performance review and give them an increase based on performance, achievement, number of Bills passed. That mechanism can’t exist, so it is in the too-hard basket” – see Jamie Ensor and Perry Wilton’s Difficult to fairly judge appropriate pay for MPs – employment law expert.

There are plenty of different economic statistics that can be used in determining each year how much to increase MP pay, and debate rages on about which one is best. It’s a question of what MPs’ salaries should be compared to – the rate of inflation, economic growth, or average wage increases?

The decision could have a big impact. For example, Claire Trevett explains: “NZ Herald data guru Chris Knox calculated that if the median wage criteria had been used since 2007, MPs would be getting $172,000 – which is $10,000 more than they get now. If overall wage growth was used, MPs would be earning slightly more than they do now. If inflation was used MPs would be on about $15,000 less than they are now on.”

You can see the various calculations in Boris Jancic and Chris Knox’s Fact check: Are politicians’ pay rises actually too big? (paywalled). They find that the Greens’ proposal would have been much more effective in limiting pay increases: “The Green Party says it wants MPs pay rises to only go up as much as the average worker’s, dollar-for-dollar. If that was the case going back to 2007, the average backbencher would today be earning about $16,500 – or 11 per cent – less than they are now.”

The Government’s announcement has again raised questions of whether MPs are paid too much. The politician responsible for the new legislation – the Minister of Workplace Relations and Safety – has had to answer questions about whether he’s comfortable with his high salary (and he is) – see 1News’ Iain Lees-Galloway hopes taxpayers see salary of ‘around $295k’ as good value, with MPs’ pay in the spotlight.

Elsewhere, Lees-Galloway has also stated that taxpayers have “absolutely not” been getting ripped off by politician pay – see 1News’ Moves to reign in MPs’ pay don’t go far enough – Greens.

But in the same report, another politician gives very questionable logic for politician pay not being too high – National’s Gerry Brownlee said: “There’s a big group of people out there who think that MPs are overpaid, another group who think we shouldn’t be paid anything. You’ve just got to try and get something in the middle that’ll work”.

This all raises the question of whether the debate about the mechanism for determining MP pay increases is just tinkering around the edges, when a bigger debate is needed about how much politicians should be paid.

It’s useful to look back to a Dominion Post editorial on this topic from last year, which suggests that the debate on the annual increases misses the point, and that pay for politicians is already too high and actually needs to be reduced – see: Oh, to be an ordinary MP on average pay.

The newspaper uses the profession of teaching as a case study: “In the late 70s, a primary school teacher earned almost three-quarters of a backbench MP’s annual salary. Today, the top teacher is paid less than half the lowest-ranked MPs. This is not to suggest that teachers, nurses, police officers and others should be paid at the level of an MP. The jobs, responsibilities and burdens are very different, making too direct a comparison difficult. But pay freezes and reviews aside, our parliamentarians will have achieved little if they simply lock the yawning disparity in place, to continue indefinitely.”

The editorial calls for a focus on narrowing the income gap between MPs and their constituents: “Even if the rules governing the Remuneration Authority are changed, and MPs’ future pay increases are more modest, the damage has been done, the horse has bolted and they will continue to be rewarded at substantially above the average wage. That’s the bigger, more disturbing truth potentially obscured by the temporary glow of a pay-freeze publicity, no matter how well-intentioned: real wages for most average and ordinary Kiwis have gone backwards while those of a select few, including our MPs, have soared. Our parliamentarians now rank in the top 1 per cent of income earners.”

Also from that time, it’s worth looking at how New Zealand’s politician pay compares to other similar countries – see Stacey Kirk’s Politicians’ pay around the world: How our MPs’ salaries stack up. She notes, for example, that in the US, “Members of Congress haven’t had a pay rise since 2012.”

Finally, with local government elections on at the moment, it’s worth thinking about how our local representatives are paid. Recently, the Auckland Super City decided to give a super pay increase to its councillors and mayor – see Todd Niall’s Auckland mayor’s salary to increase to nearly $300K as politicians see big pay rises.