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 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 the travel entitlement 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 travel and superannuation payments his or her base salary is not increased.

• 1.5 This year, the Authority's payline at the level for ordinary members increased by 2.8%. In setting an ordinary member's salary, the Authority applied a lower rate of 2.2% to salary to moderate the increase applied, given the continued need to restrain public sector expenditure as the economy improves after the global economic crisis. This year, the personal benefit of the travel entitlement to members and their families has been assessed at $6,500 per member, down slightly on last year, reflecting lower usage. Taking into account the change in value of the travel entitlement, this produces a package increase of 1.96%.

• 1.6 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. 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.

• 1.7 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. However, the level and nature of the discount is not clear either to the politicians involved or to the population as a whole. Changes in relativities at this senior level tend not to be recognised or reviewed.

• 1.8 Based on current movements in remuneration for top level executive positions, it appears that the gap between market remuneration and the remuneration of senior members of the Executive and Parliament is now greater than in the past. The Authority will be reviewing this increasing gap during the coming year.

• 1.9 In the meantime, those holding senior positions in the Executive and in Parliament have had their remuneration increased by rates similar to those for members, with slight variances being caused by rounding.

• 2 Travel discount entitlement adjustment

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

  • (a) members' domestic air travel; and

  • (b) members' spouses' domestic air travel; and

  • (c) members' dependants' domestic air travel.

• 2.2 The assessment of the value of the travel discount entitlement has had regard to the proportion of personal benefit assessed for each of—

  • (a) members' domestic travel; and

  • (b) members' spouses' domestic travel; and

  • (c) members' dependants' domestic travel; and

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

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

  • (f) 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 the Remuneration Authority Act 1977.

• 2.4 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 senior members of the Executive and Parliament as the process the Authority uses to set the salaries for those members has factored in this deduction.

• 3 Tax-free allowance

• 3.1 The Authority has adjusted members’ tax-free allowance by 0.7%, that percentage change being the percentage change in the Consumers Price Index since this allowance was last adjusted.

• 3.2 The Authority has completed its work with the Speaker to verify that the allowance is set at the appropriate level. The tax-free allowance is intended to cover out-of-pocket expenses incurred in the pursuit of parliamentary business and may include—

  • (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 (excluding wreaths for public commemorative events); and

  • (g) passport photos; and

  • (h) briefcases and luggage; and

  • (i) meals.

• 4 Superannuation

• The Authority has made no adjustment to the percentage contribution payable to members’ superannuation. This contribution is capped at 20% of an ordinary member's salary.

• 5 Backdating

• This determination is backdated to 1 July 2013. Because the Authority is a follower rather than a setter of salary trends, it is necessary for the Authority to have up-to-date data on remuneration movements, changes in the Consumers Price Index, and the usage of members' travel entitlements before it can form any views on appropriate remuneration changes. Coupled with the statutory requirement to consult before finalising the determination, this means that backdating cannot be avoided.