Bryce Edwards: MPs may be set for big post-election pay increase

  • Opinion
  • 10/01/2023
The pay freeze is due to end this year, writes Bryce Edwards.
The pay freeze is due to end this year, writes Bryce Edwards. Photo credit: Newshub.

By Dr Bryce Edwards of the Democracy Project

ANALYSIS: One of the most popular moves Prime Minister Jacinda Ardern ever made was the pay freeze her government imposed on politicians back in 2018. The freeze may have only been grudgingly agreed to by other MPs and parties, but it had universal public support.

The pay freeze is due to end this year, and new rules for setting politicians’ pay mean MPs are likely to get a huge increase to make up for six years of standing still. The move should spark debate about whether we pay our politicians too much, and whether it’s appropriate during a cost-of-living crisis for politicians to receive a major pay increase.

Fixing the disparities in politicians’ pay

For the last five years, politicians have had to forgo annual pay increases. Back in 2018, the newly elected Labour-led government implemented a pay freeze when MPs were about to receive an embarrassingly high pay increase. At this time, the Government was pushing to limit the pay demands of public servants, and the scheduled MP pay increase for that year was viewed as hypocritical.

Ardern argued at the time that a politician pay freeze was "the right thing to do", and she cited the need to make New Zealand a more equitable nation.

She highlighted that the pay gap between politicians and the public was too great. Similarly, around that time Green MP Chloe Swarbrick said "I think politicians in regard to the rest of society are overpaid and I feel pretty gross about it".

Are politicians paid too much?

The starting salary for backbench MPs is currently $163,961, with extra pay for additional parliamentary duties. There are numerous generous allowances as well, and a gold-plated superannuation scheme means that the taxpayer also gives MPs nearly $33,000 per year towards their retirement. Cabinet ministers are paid $296,007, and the Prime Minister gets $471,049.

A Newshub story in the weekend by Rachel Sadler shows that New Zealand politicians are very generously paid compared to other countries. For example, only six comparable countries pay their heads of government more than New Zealand does (Singapore, Hong Kong, Switzerland, the United States, Australia, and Germany). In the UK, for example, British Prime Minister Rishi Sunak has a salary of about $308,726. And in terms of MPs, Sadler’s research showed that "a backbench member of Parliament [in New Zealand] with no additional responsibilities earns considerably more than some MPs in comparable countries."

New Zealand politicians are also way out of kilter with the general public. MPs are now part of the top one per cent of income earners in this country. The PM earns about nine times the average income. And with MPs earning $163,961, they get nearly three times the average median income of $61,828.

The problem is that the disparity between politicians and ordinary people has been growing in recent decades. According to Newshub’s Rachel Sadler, "There was once a time when backbench politicians and teachers were paid a similar salary. However, now that gap has ballooned and now there’s a 423 percent difference between the maximum salary for teachers and what the prime minister earns."

According to the Post Primary Teachers’ Association Te Wehengarua (PPTA), "in 1976 teachers were paid $12,370 and a backbench MP was paid a total of $14,097 in salary and allowances."

There is a basic political and democratic problem with the increasing gap between the living standards of politicians and the public. The increase in pay will further distance the politicians from the realities of most people’s daily lives. So while those on the average wage struggle with daily bills, such problems are simply not felt or understood by our representatives. MPs get used to a life of comparative luxury, in which they typically own multiple houses and investments.

It was revealed last year, for example, that over half of MPs are beneficiaries of trusts – legal devices that are often used to reduce the tax bill of those involved. Increasingly, trusts are used to manage housing assets and avoid higher tax rates for assets.

A big pay rise coming

It was revealed over the weekend that politicians are to get a big pay rise later this year, after the election. The Government has changed the mechanism for how politician pay is set – asking the Remuneration Authority to review MP pay every three years after an election.

According to Newshub’s story in the weekend, "the Remuneration Authority must begin a review of MPs’ pay within three months of the writ being returned after the election."

The way the new pay rules are set, means the Authority will have to give politicians a massive pay rise to make up for nearly six years of frozen pay. The Remuneration Authority is not allowed to take into account the public mood when working out how much politicians should be paid. In fact, Authority chair, Geoff Summers, has denied that public opinion and attitudes towards politician pay should be taken into account when setting pay, referring to the problem of "public prejudice" against MPs.

This ultimately means that our politicians are set to get a mega increase in salaries after the election. MPs, ministers, and the PM will therefore be even further insulated from the cost-of-living crisis. It will make it difficult for the Government to call for restraint from lower-paid workers in 2023 when their own salaries are about to skyrocket.

Should MP pay be permanently frozen?

There is an argument that the Government, and Parliament, should put their upcoming pay review on hold, and perhaps make their current pay freeze semi-permanent.

Given that their pay rates have already spiraled way above average incomes, perhaps they even need to be reduced. The Prime Minister led the way with this in 2020 when she instituted a short-term, six-month 20 per cent reduction of salaries for her ministers. Perhaps this needs to be brought in again, and this time for all MPs.

In a time of serious inflation, poverty, and inequality, perhaps it’s time for politicians to lead by example, rather than quietly plan for a hefty increase in pay for themselves. In the absence of evidence of politician hardship, an ongoing pay freeze should be maintained.

The fact that politicians have arranged for their pay increase to occur after the election should spur questions on the campaign trail about whether MPs are happy to receive a huge pay increase.

But don’t expect any real answers. Politicians love to talk about everything except for the taxpayer funding of themselves and their parties.

As evidence of this, Newshub asked all the parties in Parliament for comment on their looming pay rise. The only response was from David Seymour, who had a very sensible reply, suggesting that higher pay isn’t necessary, as politicians shouldn’t be doing the job for the high salaries: "For some it’s the best job they’ll ever get, others will take a pay cut to do the job they love. That wouldn’t really change if you doubled or halved the salary."

Rather than lock in the yawning disparity between New Zealand’s rulers and the ruled, we need a debate on whether the post-election pay increases should be cancelled. And more generally, it’s time for a bigger debate about politician pay, and what the right level of remuneration is.

Democracy Project.

Dr Bryce Edwards is Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.