Explanatory memorandum

This memorandum is not part of the determination, but is intended to indicate its general effect.

• 1 Background

• 1.1 This memorandum explains not only the general effect of this determination, but also—

  • (a) the extent and limitations of the role of the Remuneration Authority (the Authority); and

  • (b) the considerations that have driven the Authority in coming to this determination.

• 1.2 The Authority is required to have regard to the following when setting parliamentary remuneration and allowances:

  • (a) the need to achieve and maintain fair relativity with the levels of remuneration received elsewhere; and

  • (b) the need to be fair both—

    • (i) to the persons or group of persons whose remuneration is being determined; and

    • (ii) to the taxpayer or ratepayer; and

  • (c) the need to recruit and retain competent persons.

• 1.3 In addition the Authority must take into account—

  • (a) the requirements of the position concerned; and

  • (b) the conditions of service enjoyed by the persons whose remuneration is being determined and those enjoyed by the persons or members of the group of persons whose remuneration and conditions of employment are, in the opinion of the Authority, comparable with those of the persons or members of the group; and

  • (c) any prevailing adverse economic conditions, based on evidence from an authoritative source; and may determine the remuneration at a rate lower than it would otherwise have determined.

• 1.4 Since 2001/02 the Authority has taken a remuneration package approach which takes account of the market rate for employees undertaking jobs with similar complexity and responsibility to identify a package value for ordinary members of Parliament. This figure reflects the total package of benefits members could expect to receive given the criteria in place at the time. Part of that package is the personal benefit value of the travel discount entitlement and part is the superannuation subsidy.

• 1.5 Each year the Authority has reviewed the appropriate total package value to ensure that the overall remuneration package available to ordinary members was aligned to the appropriate external groups. The Authority also reviews the value of the personal benefit of the travel discount entitlements, based on the actual usage of the entitlements.

• 1.6 The salary, and the value of the superannuation subsidy available to ordinary members, is then set by having regard to the total package value and the assessed personal benefit value of the travel discount entitlement.

• 1.7 The same approach is not taken in setting the salary rates for members with additional responsibilities, such as Ministers, the Speaker, the Prime Minister, and the Party Leaders. These rates are set using previous relativities within Parliament and reflect a measure of assessment of a fair remuneration for those members, taking into account the element of “public service” associated with those positions and the honour that many people feel when achieving higher status within Parliament. Had a form of external wage relativity been applied, the Authority recognises that the increases promulgated would have been significant and politically untenable.

• 1.8 When setting salary rates for members with additional responsibilities, the Authority recognises that the remuneration package for those members includes the personal benefit value of the travel discount entitlement as well as the superannuation subsidy. For this reason, the Authority, which pays close attention to benefits provided to all members by the determination issued by the Speaker, has merely kept a weather eye on the changes that from time to time occur in the determinations issued by the Minister Responsible for Ministerial Services. Although the value of ministerial allowances and reimbursement may vary from time to time, the packages that Ministers enjoy do not match either public or private sector remuneration for similarly responsible positions. To the extent that salary levels for this group are built on salaries for ordinary members, their salaries are discounted by the amount of the personal benefit of the travel discount entitlements.

• 2 Travel discount entitlement adjustment

• 2.1 Travel entitlements available to members are set by the Speaker and cover—

  • members’ domestic air travel; and

  • members’ spouses’ domestic air travel; and

  • members’ dependants’ domestic air travel.

• 2.2 Assessing the value of the travel discount entitlement has had regard to—

  • the proportion of personal benefit assessed for each of—

    • members’ domestic travel; and

    • members’ spouses’ domestic travel; and

    • members’ dependants’ domestic travel; and

    • the actual costs of the various travel entitlements in each year; and

    • the average cost per member of the travel entitlements (even though members do not get equal benefits from the entitlements); and

    • some averaging of per member costs over time to recognise that costs can and do fluctuate from year to year.

• 2.3 It is recognised that some members get a disproportionate share of the value of the entitlements (by having more usage or by having a greater proportion of travel costs reimbursed) whereas all members are paying equally (by having the same reduction in salary). The Authority recognises this but is of the view that there is no other way of offsetting the personal cost of the entitlements whilst meeting the requirements of our Act.

• 2.4 The actual costs of the travel discount entitlements have reduced in recent years and the Speaker formally withdrew the members' and spouses' international air travel entitlement with effect from 1 January 2011. Last year, after taking into account the reduced usage in the 2010/11 year and the withdrawal of the international entitlement, the Authority adjusted each member’s salary by $5,000.

• 2.5 It is important to understand that, because the salary of every member is adjusted to take account of the personal benefit of the travel discount entitlements available to all members, the members themselves are meeting the cost of those personal benefits by, in effect, taking a salary cut to pay for the benefits. The cost is also being met by members with additional responsibilities by virtue of the process the Authority uses to set the salaries for those members.

• 2.6 It therefore follows that, if the value of the personal benefit of those entitlements decreases, there should be a compensating adjustment to salaries. If no compensating adjustment were made then members would be paying for a benefit which they are not getting.

• 2.7 A similar situation could happen in the private sector if, for example, a manager had the personal use of a car as part of their employment package. The value of the private use would be reflected by the manager having a lower salary for a given overall package value. If the value of the personal use of a car reduced, then the manager’s salary would be increased so that their overall package value remained the same.

• 2.8 This year, after taking into account further reductions in the actual cost of the travel entitlements and allowing for fluctuations in usage, the Authority has made a small reduction to the assessed value of the travel discount entitlements, which has been taken into account when setting salary movements.

• 3 General salary adjustment

• 3.1 In recent years, members’ remuneration packages have not kept pace with increases in the cost of living, nor with general wage movements.

• 3.2 This has partly been due to Parliament requesting (and the Authority acceding to that request) to have no increase for the 2009/10 year, and partly due to the Authority taking into account prevailing adverse economic conditions.

• 3.3 Since fiscal year 2009 general salaries and wages have increased by 5.6% and the Consumers Price Index has increased by 8.0%. Parliamentary salaries (excluding the $2,000 and $5,000 increases in 2010 and 2011 to compensate for the reduction in value of the travel discount entitlements) have increased by only 2.9%.

• 3.4 Taking into account the prevailing adverse economic conditions and the small reduction in assessed value of the travel discount entitlement, the Authority has decided to apply a general increase this year of around 1.9%.

• 3.5 This still leaves members of Parliament receiving lower remuneration increases than the general population.

• 4 Tax-free allowance

• 4.1 The Authority has adjusted members’ tax-free allowance by 1.0%, that percentage change being the percentage change in the Consumers Price Index since this allowance was last adjusted.

• 4.2 The Authority is working with the Speaker to gain assurance that this allowance, which was independently verified in 2001, is still set at an appropriate level to meet such genuine out-of-pocket business expenses as—

  • (a) the entertainment of visitors, staff, constituents, and officials; and

  • (b) memberships, sponsorships, and fees; and

  • (c) koha; and

  • (d) donations and raffle tickets; and

  • (e) gifts and prizes; and

  • (f) flowers (including wreaths); and

  • (g) passport photos; and

  • (h) clothing and grooming (Prime Minister only); and

  • (i) briefcases and luggage; and

  • (j) meals.

• 5 Superannuation

• 5.1 The Authority has made no adjustment to the percentage contribution payable to members’ superannuation. This contribution, which is capped at 20% of an ordinary member’s salary, ranges from 6.9% to 20%, depending on the position the member holds.