Should politicians get a big rise? Or a 7.5% pay cut?

Pay cuts, wage restraint, and redundancies are currently being forced on everyone in the government sector. Except in Parliament. It seems that politicians have decided that their salaries and budgets are the one place that is off limits to austerity and restraint. MPs are being insulated from the cost-of-living crisis endured by everyone else.

This is because politicians are in line for a big pay increase soon. This is because the parliamentarians have tasked the Remuneration Authority with coming up with a new schedule of salaries, with attention to aligning their rate of pay to top jobs in the private sector. The report comes out this month, carefully timed to avoid it being an election issue. And given the terms of reference set by the MPs, there is likely to be a big pay increase coming the way of all MPs, especially those in Cabinet.

Newstalk ZB’s political editor Jason Walls has written about this today, reporting that Prime Minister Christopher Luxon won’t comment on whether politicians should be paid more – see: Luxon’s pickle as MPs’ pay rises loom amid public sector cuts

I’m quoted in the story, saying: “At a time of a cost-of-living crisis, [an increase to MPs pay] would be deeply unpopular and will lead to a backlash.” I also say that a further rise in MP pay could be a democratic problem: “If the way our representatives live and the incomes they’re used to are so out of sync with wider society, it will make people wonder whether they are representatives or part of a distanced elite.”

The article points out that the average New Zealand wage is about 70,000, while MPs start on $163,961 a year, Cabinet Ministers and the Leader of the Opposition get $296,007, and the PM receives $471,049 a year.

The case for paying politicians much more

Newstalk ZB’s Jason Walls believes that politicians are underpaid, and should all get a big pay increase, saying that PMs deserve at least a million dollars a year “to reflect their workload and sacrifice” – see: The Prime Minister, his Ministers and every MP in Parliament are vastly underpaid (paywalled)

The “mammoth” workload and media scrutiny of the current PM is given as a reason for a higher rate of pay: “Luxon’s on record that he’s up at 4am many mornings and works past midnight”. This compares very favourably to that of those in the private sector, according to Walls: “In the 24 hours from 4pm on Monday, New Zealand’s Prime Minister will do more media than any Kiwi CEO will do in an entire year.”

Yet, according to Walls, CEOs are paid much more than Luxon. For example, the highest-paid CEO in the country – John Cullity of Ebos, earns $8.4m a year – that’s 21 times what Luxon earns. And Luxon’s replacement at Air New Zealand, Greg Foran, gets $3.1m. In contrast, Luxon’s $470,000 might not even get him into the Top 100 CEO pay rates in the country according to Walls.

Walls’ case is also bolstered by the fact that the chief executives of government departments often earn more than government ministers. He gives the example of policing: “Police Commissioner Andy Coster makes $670,000 a year, Police Minister Mark Mitchell makes $296,000 (plus perks).”

What’s more, if we want to recruit politicians from the private sector, New Zealand has to be willing to pay more, says Walls. If you pay peanuts, you get monkeys: “We want people top-of-their game to be coming into Parliament. The best minds in their respective fields. People who know how to lead and get results. Those people tend to be highly paid and the prospect of leaving a company or organisation paying you many hundreds of thousands of dollars to sit in the back of the debating chamber and speak only when spoken to is not exactly enticing.”

On Newstalk ZB yesterday, its political panel also backed up the idea that MPs need to be paid more – see: The Sunday Panel: Do politicians deserve more money?

On this, broadcaster Nick Mills agreed that Luxon should be getting a million dollars a year. He argued for some sort of “performance pay”, or perhaps that upon being elected MPs should continue to simply get the same rate of pay that they did before going into politics. In contrast, conservative commentator Liam Hehir argued for politicians to get paid a “reasonable salary” that isn’t so low that they are incentivised into corruption or graft to enrich themselves.

MPs are now part of the top 1%

There used to be some sort of relativity between what MPs earn and that of, say, a secondary school teacher. But since the 1980s, politicians have shifted the task of setting their pay to an independent authority but told them to set the pay with regard to similar jobs in the private sector. As a result, politician salaries have been spiraling upward in recent decades. MPs are now in the top 1% of income earners.

However, their salaries have been frozen since 2018. The then prime minister Jacinda Ardern took stock of the state of the economy and public opinion and said it was time for a pause. The next time salaries were to be increased, Covid had hit, and again it seemed appropriate to forgo an increase again.

The Remuneration Authority has now been told by Parliament to review their salaries with a “greenfields” approach, asking them to reevaluate how much the politicians get paid compared to the private sector, and told they can only give recommendations of the same salary or more – they’ve been directed not to reduce current MP salaries. The Authority itself has also spoken out, saying that in making their recommendations they won’t take into account what their chair calls the problem of “public prejudice” against MPs.

The recommendations, due out this month, are legally binding on the MPs. MPs will say that they have no choice but to accept the higher salaries.

Is it time for the politicians and their budgets to be cut back?

Despite the notion that their “hands are tied”, MPs don’t have to accept the Remuneration Authority’s ruling of higher pay. All they have to do is vote to change the law. They could easily vote to impose on themselves a 7.5% pay cut – the same proportion that the Government is currently imposing on government agencies.

There would be plenty of support to do so. For example, the Taxpayers Union has already come out with a petition against the upcoming pay increases for politicians. They say: “New Zealand's MPs are already among the most highly paid in the world, and when you add in their additional perks and spending allowances, all of which are not subject to the Official Information Act, taxpayers aren't getting a fair deal.”

Generally, the Taxpayers Union are right about politicians in this country being paid more than most. The salary for political service varies greatly around the world, of course. For example, UK Prime Minister Rishi Sunak earns about $350,000, while the US President gets about $670,000.

A cut to MP salaries has also been suggested by Sunday Star Times journalist Andrea Vance. She wrote last week that if Government ministers such as David Seymour really believe that the country can’t afford things like school lunches, then surely we can’t afford lots of the luxuries and nice things that the politicians are getting. She suggests that all their parliamentary budgets should be cut by 7.5%, and that the axe should fall on things like the Beehive heated swimming pool, and “the bouquets of freshly-cut flowers, replenished weekly around the Parliament building” – see: If we can’t afford school lunches, why are we still paying for MPs’ perks? (paywalled)

There are indeed some big budgets that the MPs enjoy at Parliament that seem to be exempt from the belt-tightening. In the last financial year, for example, the various parties in Parliament enjoyed state funding of $52m between them for “party support”, much of which is essentially used for their ongoing electioneering in terms of political advertising, polling, etc.

Vance also points to the huge political expenses that MPs and ministers also claim. For the most recent report on these, see the 1News report by Felix Desmarais: Expenses for MPs and Ministers revealed – who spent what?

The good news is that Christopher Luxon has already decided to tighten ministers’ belts in one regard – the cars that they’re allowed to buy to keep at home for their own use. In February, Claire Trevett reported that: “Prime Minister Christopher Luxon has cut the amount ministers can spend on taxpayer-funded cars and will not get one for himself as the focus goes on the Government’s cost-saving demands across the public sector.

Luxon’s office said he had cut the cap on ministers’ self-drive cars from $85,000 to $70,000” – see: Prime Minister Christopher Luxon cuts spending cap on ministers’ taxpayer-funded cars... to $70,000

But that will hardly be enough to prevent a backlash from the public if MPs accept a hefty pay rise. Luxon is going to have to take a stronger lead on this than just the perks. He’s going to have to get used to the idea that the country is in a recession, he’s asking everyone else to make sacrifices, and that taking a big pay rise will look scandalously hypocritical.

Finance Minister Nicola Willis has the Budget coming up soon. There will be plenty of slashing and cutting involved, in which she will expect the public to pay the price of the recession and her tax cuts. It’d look especially bad if this bad medicine is applied at the same time that she and her colleagues have just accepted their pay increases.

It's time for Luxon to take some inspiration from Ardern when she was PM during Covid, when she instigated a six-month 20 per cent cut in salaries for her ministers and public sector bosses. This time, Luxon should suggest that all MPs join in the sacrifice too. He should repeat what Ardern said at the time about ministerial pay cuts – that they were “the right thing to do”.

Dr Bryce Edwards

Political Analyst in Residence, Director of the Democracy Project, School of Government, Victoria University of Wellington

This article can be republished for free under a Creative Commons copyright-free license. Attributions should include a link to the Democracy Project (https://democracyproject.nz)