Remuneration Authority (Members of Parliament Remuneration) Amendment Bill (No 2)

I move, That the Remuneration Authority (Members of Parliament Remuneration) Amendment Bill (No 2) be now read a first time. I nominate the Education and Workforce Committee to consider the bill.

The Remuneration Authority is an independent body responsible for setting the remuneration of key public office holders such as members of Parliament, judicial officers, elected local government officials, and the Governor-General. For all positions except members of Parliament, the authority sets remuneration by taking into account criteria set out in the Remuneration Authority Act 1977. MPs’ pay is a matter of considerable public interest, and the Act has been amended a number of times over the past 10 years. Most recently, in 2015, Parliament amended the Act to remove the authority’s discretion and introduce a formula that linked MPs’ salaries to the percentage increases in the average weekly wages of public servants. It’s worth noting that the Remuneration Authority has no discretion in setting the proposed increase, as the increase is determined by a formula set in law. This formula has resulted in unacceptably high percentage increases to MPs’ already high salaries compared to the previous criteria-based approach.

Since the 2015 changes, MP salary increases have ranged from 2.46 percent to 4.06 percent per year compared to average increases of 1.7 percent in the four years prior to the 2015 changes. In absolute terms, the dollar increases since 2015 are also higher. Given the level of pay MPs receive relative to the average wage in New Zealand, a high percentage increase can result in a significant increase to the total amount that MPs are paid. The repeatedly high annual pay increases under this formula call into question whether the settings for determining MPs’ pay are fit for purpose.

Members will recall that last year, the Prime Minister announced a freeze on MPs’ pay, which was implemented by Parliament, because the increase at the time proposed under the formula was unacceptably high. As part of that pay freeze, the Government reviewed the mechanism for determining increases in MPs’ pay. Officials consulted the authority to test options and to ensure that any proposed changes would be fit for purpose.

The Government believes that the current system for setting MPs’ salaries is unfair to taxpayers and must change. The Government has introduced this bill to address the issue of disproportionate increases in MPs’ total remuneration by restoring the legislation to its pre-2015 position and returning discretion to the authority.

The bill amends the Remuneration Authority Act 1977 and the Members of Parliament (Remuneration and Services) Act 2013 to establish a new process for how the authority sets the salaries of MPs. The bill restores the authority’s discretion to determine MPs’ salaries based on criteria. Other public office holders whose salaries are already adjusted based on the criteria have received smaller pay increases than MPs. The authority favours this criteria-based approach and considers that this would equip it with the flexibility to take into account changing circumstances or changing requirements of roles and would be the most durable system for setting MPs’ pay. The bill restores the requirement for the authority to consider the value of the personal benefit arising out of entitlements when setting MPs’ salaries. This requirement was removed in 2015, and the authority did not support its removal.

The bill requires the authority to make this year’s determination of MPs’ pay under this restored system. Finally, the bill links the authority’s reviews to the electoral cycle so that the authority would conduct one review after each general election and would set MPs’ pay for the entire term of Parliament, specified on a year-by-year basis.

I’d like to briefly comment on how these changes fit with the Government’s wider plan. The Government is committed to ensuring that all New Zealanders share in our economic success. Wages are starting to rise as a result of the Government’s policies, meaning more New Zealanders are sharing in the benefits of economic growth. Figures out in August show average ordinary-time hourly earnings of $32.37 an hour were up 4.4 percent from a year ago—the biggest rise since June 2009. The minimum wage has gone up to $17.70 this year. This is benefiting approximately 209,000 workers, lifting wages throughout the economy by $231 million per year and making a big difference for working families. For a full-time worker, this means an extra $48 a week before tax—enough to make a real difference for working people.

Those changes have ensured that working people in New Zealand are receiving fair wages. We need to ensure that those of us who receive the highest earnings remain in touch with those increases and those rates of pay for ordinary working people. This bill responds to the disproportionate growth in MPs’ salaries and will ensure that in the future, MPs’ salaries are reasonable and justified in relation to the increases received by working Kiwis. I commend this bill to the House.

In August last year, after the Remuneration Authority proposed a 3 percent increase for the year to 30 June 2019, the current Government announced that it proposed a pay freeze and a review of the formula setting for MPs’ salaries. It said that MPs’ salaries had risen at a rate out of proportion with wage growth for most of New Zealand. We understand that MP pay is always a contentious issue. In August last year, we supported the Government’s bill to freeze MP pay and a review taking a look to see if there was a more fair way to set it which the public thinks is appropriate. The Remuneration Authority (Members of Parliament Remuneration) Amendment Bill (No 2), introduced on 28 August 2019, is the result of that review, and we look forward to examining the proposals in this bill at select committee, where the public of New Zealand will have the opportunity to have their say. We support this bill. Thank you, Mr Speaker.

I’m delighted to take a call here tonight on the Remuneration Authority (Members of Parliament Remuneration) Amendment Bill (No 2). Knowing that this bill has such a long name, I’m not going to take very long here this evening on this particular call. But I’m excited, too, that this is coming to the Education and Workforce Committee as a bill. I think it is, as the previous speaker, Barbara Kuriger, has just said, a result of the work that has been done around MPs’ pay. I’m looking forward to our select committee examining this further and looking forward to the submissions that we have coming forward and having a really, really good in-depth look at it. We are wanting to create a more productive and sustainable and inclusive economy in this Government, and this bill fits in as part of that work plan. With that, I’ll leave it at that, and I commend this bill to the House.

The question is—

💬 Clayton Mitchell: Mr Speaker.

Clayton Mitchell.

Whew—I thought I was going to miss my call then. It’s the quick or the dead around this place.

💬 SPEAKER: Well, the member needs to call.

Oh, I did. I was up on my feet when I looked across the House and saw nobody rising. So thank you very much, sir. I will only be taking a quick call on this.

Look, the Remuneration Authority (Members of Parliament) Remuneration Amendment Bill (No 2) is a very pragmatic bill, and it’s great to hear our National colleagues across the House that support this bill. It’s going to be a very interesting select committee process as this bill goes through. Just in the six years that I’ve been in Parliament—or almost six years—we’ve had two wage freezes, which I think has been necessary. As the Minister has pointed out, the formula that has been created previously actually created a larger than expected increase on the salaries of MPs. To freeze these wages over these two separate times was a pragmatic approach. I think it was muchly appreciated. But also, in 2009, wages were frozen by a decision made by the members of Parliament because, of course, we went through a recession. It’s very hard to justify in this House—you know, working on behalf of all New Zealanders—that we were going to get an increase of 3 percent but the rest of New Zealand were on their knees feeling that pinch.

So this bill will enable future freezes as well, but it does two things. The bill makes two major changes to the system of setting MPs’ pay. Firstly, it returns the discretion in pay setting to the Remuneration Authority, without the use of a formula. Like other public office holders regulated by the Remuneration Authority, MPs’ pay would be set in accordance with some factors, which are outlined inside the bill. The other thing that it does, which I think is quite important, is that the MPs’ pay will occur once every three years, at an election cycle, and then be looked at annually throughout that term as it comes through. So those are the two major changes.

But I want to dispel a couple of myths because of the amount of people that talk to me out there and say that, you know, it’s terrible that New Zealand politicians, when they finish up a couple of terms in Parliament, get their salaries paid for the rest of their life. That’s absolutely not true. They said, “Oh, I thought you only get 80 percent of your salary.” I said, “No, that’s not true either.” It did happen many, many, many moons ago. I think that was stopped in about 1992, wasn’t it?—I think, from memory. It might have been—

💬 SPEAKER: Yes, it was. I remember it well.

Yeah, 1992. To dispel another myth, for those people tuned in at home listening, we don’t get 10 percent flights on Air New Zealand for the rest of our lives either. So thank goodness for that opportunity some people say. Great to see those sorts of things tidied up.

But I think in the select committee process we’re going to probably hear from a number of submitters. I’m sure we will hear that some submitters think we shouldn’t be paid anything at all, and that may be true for some members of Parliament; maybe they shouldn’t be paid anything at all. But in actual fact, I think the majority of New Zealanders feel that the pay needs to be in accordance with other likeminded work that is done—the hours and the commitment and the outputs that are happening. I just want to also underline, before finishing off my contribution, that it’s been great to be part—over the last two and a bit years—of working towards lifting up our minimum wages, working towards helping out those people that are the most vulnerable workers in society to have a $17.70 minimum wage. Working towards that $20 per hour over the next two years is absolutely vital in providing that we can add value to those hard-working New Zealanders, and I feel like we’re contributing well and truly to the wellbeing of all Kiwis.

So we will be supporting this bill. I want to acknowledge and thank the National Party for their support moving forward, and we look forward to this bill getting to select committee so we can hear from submitters. Thank you, sir.

Thank you, Mr Speaker. Here we are again: a group of members of Parliament attempting to avoid the embarrassment of riches that occasionally accidentally shower down upon us once every few years—trying to correct for mistakes made by the last Parliament on this matter. I imagine, Mr Speaker, as you’ve just pointed out remembering the changes in the early 1990s, that you’ve been through versions of this debate many, many times over. Wouldn’t it be wonderful if we could actually work out a way to get it sorted and not have to deal with it every Parliament?

I had the dubious pleasure of being in the Parliament in 2015 when we debated the last set of changes that were pushed through under urgency, which pegged MP remuneration increases to the Public Service rate. I have to say I said at the time that this is what would happen—that we would end up with even faster rates of increases if we pegged them to the Public Service rate than we would if we’d pegged them to the median rate, because that’s the way things happen. And that is actually what happened. So here we are attempting to unwind something that we pushed through under urgency in 2015, when you then had a group of members of Parliament attempting to unpick a piece of algebra late in the night, none of which made much sense. The inevitable thing happened, and here we are attempting to fix that by restoring the law to the way it was prior to 2015.

I want to commend the Minister Iain Lees-Galloway for the work that he has done across the House to get us to this point. He will know that the Green Party has quite strong views about MP pay, and I will state them again for the sake of the House, because we are supporting the bill because it is an improvement. It does reverse the error that was made in 2015, but it doesn’t do what we would like it to do. The Green Party believes, and has believed for a very long time, that what we should do is peg MP remuneration to the nominal change in the median weekly income of all New Zealanders according to the household labour force survey (HLFS)—not the percentage but the actual nominal amount. What that would then do is it would give members of Parliament a really crystal clear idea of what is going on out there in the rest of the country in terms of the movement in people’s actual real lives. If you want the House of Representatives to be representative, I think that one of the places that you could start would be for MPs to have an awareness, in very real terms, of what changes are going on in the median weekly wage.

One of the things that should change about this bill, in our view, would be to remove the clause that says that MPs’ pay cannot go down, it can only go up. If you peg MPs’ pay to the nominal change in the median weekly wage according to all income sources, according to the HLFS, then MPs’ pay could go down, because actually the median weekly wage has in times past gone down. If we are going through tough times as a country and the median wage goes down, I believe, and the Green Party believes, that, actually, MPs’ pay should also go down to reflect that. It gives us a sense of reality about what’s going on in the world.

So those are changes that we would like to see to this bill. We will be supporting it through the House, but we would be very keen in the subsequent stages to engage in a debate with our colleagues across the House about what we think is a measure which would both, in very real terms, tie us to the average Kiwi, the average New Zealand family, but also, I think, help to close the gap, because you have to understand that members of Parliament are in the top 2 percent of salary earners in the entire country. As long as we keep getting percentage increases, that gap only increases—it just gets bigger and bigger and bigger all of the time between us and the average. So if we were to say “Well, we’re going to tie our remuneration to the nominal changes.”—not the percentage increase but the actual cash amount and the changes in the median wage—then what would happen is that, over time, our salaries would flatten out and the gap between us and the median would start to close. Again, I think that that would give us a better sense of reality.

To give you an illustration: at the moment, a backbench MP earns just under $165,000. If our proposal had been in place since 2011, a backbench MP’s pay would be $11,000 lower than it is today: just a nudge over $150,000. Therefore, obviously, the gap would be closer to the median than it is today. So I think that that is a proposal that we have debated a number of times and that we have put to the House, and we will put it to the House again through the various stages of this bill. I think, given that Parliament consistently does seem to get it wrong on this issue, but given that nobody else is around to change the law on this other than Parliament, actually, we would like that proposal to warrant serious consideration.

So those are the changes that we’ll be looking for. As a number of other speakers have mentioned, there is a change in this bill that we think is a very good idea, which is the idea of shifting from annual changes to simply one per parliamentary term. We think that that makes a lot of sense. It means that if it does come up for debate, it only comes up for debate once every three years rather than every year, and you don’t get into the kind of silly situation that we’ve had of freezing and then debating and then changing the system, and then finding out that that didn’t work, and then freezing them again and going through the whole goat rodeo and wasting an enormous amount of time on behalf of the relevant Minister who has been saddled with the task of attempting to unpick this, at least for this parliamentary term until we go at it again next parliamentary term.

So, again, I just wanted to say we are supporting the bill. We do think that the system that was in place prior to the changes in 2015 is better than those changes that were introduced in 2015. However, that system itself was flawed, and we would like to see further changes to the bill and to the way that MPs get paid, and we think that that would only be fair. Thank you, Mr Speaker.

Bill read a first time.

Bill referred to the Education and Workforce Committee.