Explanatory memorandum

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

• 1 General

• 1.1 This has been a year during which there has been much informed and uninformed comment about the remuneration of parliamentarians and the role of the Remuneration Authority (the Authority) in setting and reviewing that remuneration. It is also a year in which an additional criterion was included in the criteria in the legislation under which the Authority undertakes its tasks. These criteria are—

  • (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; and

  • (d) the Authority—

    • (i) must take into account any prevailing adverse economic conditions, based on evidence from an authoritative source; and

    • (ii) may determine the remuneration at a rate lower than it would otherwise have determined.

    A determination of remuneration at a lower rate under paragraph (d)(ii) must not result in the remuneration of a person or group of persons being lower than the remuneration the person or group of persons was entitled to before the determination.

• 1.2 It follows a year in which Parliament itself requested that it not receive an increase in remuneration, and the Authority acceded to that request, a move that adversely impacted the remuneration of members relative to groups against which they might otherwise be compared, but which the Authority agreed was warranted by the need to show leadership in adverse financial times.

• 1.3 Throughout 2010 there has been a call for greater clarity in the way the remuneration and allowances of members are set.

• 1.4 This memorandum seeks, as well as to explain the extent and limitations of Authority’s role, to indicate the considerations that have driven the Authority in coming to its determination.

• 1.5 The last major review of the remuneration of members was undertaken in 2001–02 and the results were reflected in the determination issued in 2003. That determination confirmed the remuneration package approach taken by the Authority (by recognising the value to the members of the travel discount entitlement) and comprised 3 components—

  • (a) salary adjusted to reflect an averaged value of the travel discount entitlement; and

  • (b) a tax-free allowance; and

  • (c) a superannuation subsidy.

• 2 Salary

• 2.1 Looking at personal income, rather than the provision of administrative support to members, there are 3 parties who are involved in setting the employment package of members—

  • the Speaker, by way of determination setting travel, accommodation, communication, and attendance rules, establishes entitlements for all members; and

  • the Minister Responsible for Ministerial Services, by way of determination, sets additional or alternative entitlements for members of the Executive; and

  • the Authority, which determines the salary, and the other matters referred to above, within certain restraints.

• 2.2 The review undertaken by the Authority in 2001–02 took 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 reflected the total package of benefits members could expect to receive given the criteria in place at the time. Part of that package was the value of the travel discount entitlement.

• 2.3 Over the intervening years the Authority has reviewed and adjusted its view from time to time of the correct valuation of the travel discount entitlement to ensure that the overall remuneration package available to members was aligned to the appropriate external groups.

• 2.4 The same approach was not taken to set the salary rates for members with additional responsibilities. These were 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 increases promulgated would have been significant and politically untenable. The Authority of the day recognised this and subsequent Authorities have also done so. By setting salary rates for members with additional responsibilities, the Authority recognises that the remuneration package for those members includes the 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.

• 2.5 This determination comes into effect on 1 July 2010, at which stage the travel discount entitlements available to members were unchanged from those available in 2003 (calculated at the time to be valued at $10,700).

• 2.6 In reviewing that package this year, the Authority faces significant difficulties. The Authority has traditionally considered the previous year’s usage of members’ travel discount entitlements, and set the salary component of the members’ remuneration accordingly. In the 2009–10 year, usage of all elements of members travel discount entitlements has decreased, the international element significantly. Given that the average cost of travel is offset against the salary for all members, there is a strong argument for an increase to salary to reflect the reduction in usage and subsequent reduction of cost to the taxpayer and value to the members. Such an increase should return members to the remuneration package they could expect to receive.

• 2.7 Yet matters are not frozen at the position as it stood on 1 July 2010. We understand usage of the travel discount entitlements continues to fall and the international travel component is in the process of being withdrawn, albeit alongside the introduction of a more targeted entitlement for travel on parliamentary business. Until the international entitlement is formally withdrawn and the changes in usage are reflected in the long-term conduct of members, the final value of the continuing allowances cannot be assessed. In making such an assessment of value to members, the Authority will continue to be guided by the views of the Department of Inland Revenue on the personal benefit of any remaining travel allowances.

• 2.8 The Authority has therefore decided to issue 2 parliamentary determinations this year. This determination sets remuneration, taking into consideration—

  • the wage movement the Authority would have applied from 1 July 2010 to parliamentary salaries, being 1.4%. This movement is less than the movement in the Consumers Price Index, is a movement that has applied across many parts of the public sector, and does not reinstate members at the level they would have received had an increase been applied in 2009:

  • an additional adjustment of $2,000 per member to partially reflect the fall-off in usage of the travel discount entitlements during the 2009–10 year. The Authority has not applied the full adjustment to members’ packages until the long-term effect is clear. This adjustment reflects a saving to the taxpayer, and arguably fairer treatment of those members who did not access the payment.

• 2.9 The Authority will issue an amending determination early in the New Year once the ongoing effects of the new Speaker’s Determination have been considered both by the Authority and the Inland Revenue Department. This second determination will not include a movement in the total value of a member’s package but will make a further dollar-amount adjustment to salary to maintain the value of members’ remuneration packages.

• 2.10 The Authority believes that these 2 adjustments that reflect the change in the travel allowance provision are cost-neutral to the taxpayer and meet both the letter and spirit of our legislation.

• 3 Tax-free allowances

The Authority has adjusted the members’ tax-free allowances by 3.7% being the change in the Consumers Price Index since the allowance was last adjusted. The Authority will be working with the Speaker to gain assurance over the coming year 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.

• 4 Superannuation

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 6.7% to 20%, depending on the position the member holds.