Accepting a significant pay rise shows how out of touch MPs are

How entitled are New Zealand’s politicians? Right now, MPs across the political spectrum look entirely out of touch in their unified stance of accepting the hefty pay increases recommended by the Remuneration Authority.

MPs should simply reject the pay increases – which they can easily do – rather than risk a legitimate public backlash from constituents who feel betrayed by an already well-paid political class that insists on austerity for others but not themselves.

How much MPs earn, and how their pay got so high

Politicians are currently in the top one per cent of income earners in New Zealand, receiving some of the most generous pay packages around. Backbench MPs have a basic salary of $163k, but once the additional perks are included, the lowest MP salary package is said by the Remuneration Authority to be $231k. Of course, as MPs rise up the ranks, they get even higher pay. At the very top, the PM currently gets paid $471k, plus perks.

Historically, MPs have been paid at a much lower level. The role of a politician was once regarded as a vocational public service. Consequently, a backbench MP was only paid at the same rate as a senior secondary school teacher.

Then, in the 1980s, alongside the neoliberal reforms, politics was professionalised, and MPs demanded to be treated more like private sector executives. Egalitarian ideas that MPs should be “just like us” went out of fashion. The PM stopped having his phone number listed in the phone book. Regarding themselves as elite professionals, MPs felt no shame in devising new ways of calculating their pay that sent them skyrocketing. Running the country, and politics in general, was now to be done so like a business.

Politicians also enriched themselves in other ways. It became more common for MPs to invest in shares and accumulate real estate. MPs across the political spectrum made a fortune out of rising house prices. Nowadays, only a handful of politicians aren’t property owners, and it’s common for them to own multiple houses.

MP pay got politicised

Following the global financial crisis of 2007-11, there was a significant rise in concerns about inequality, the housing crisis, and poverty. The public was also increasingly making connections between economic wealth and politics. With the popularisation of the concept of “The 1% against the 99%,” politicians were quick to disassociate themselves from the overpaid elite or be generally part of the problem.

In 2017, the Labour-led coalition government came to power on a wave of revulsion against economic inequality. Prime Minister Jacinda Ardern proclaimed capitalism a “blatant failure,” and Deputy Prime Minister Winston Peters entered into an alliance with Labour and the Greens, promising “capitalism with a human face.”

In this context of anti-plutocracy and a sense that a political class, including senior public servants, were already overpaid, Jacinda Ardern made her popular decision to intervene against yet another significant pay increase for politicians. To widespread applause, she explained that a pay freeze would help reduce the rich-poor divide. She even followed this up during Covid with a temporary 20 per cent pay cut for ministers. (It’s often reported nowadays that MPs also took a 10 per cent pay cut, but this never happened).

How the latest pay increase has come about

Lately, politicians have been crying poverty, pointing out that an increase in their pay is needed because they haven’t had an adjustment since 2017. The Remuneration Authority was, therefore, given the task of undertaking a “green fields” review in which they had to rethink what politicians should earn. The terms of reference for this were written by the politicians, and they essentially stated that the Authority should come up with a new pay package in which MPs must be regarded as akin to corporate executives in the private sector.

So, although many politicians have suggested that the Remuneration Authority is “independent,” its processes are, in fact, determined by the politicians, which guides what they can recommend. The instructions were also written in a way that prevented the Authority from easily taking into account political or economic conditions, so in awarding pay raises, the Authority hasn’t considered the current crises. The politicians also directed them not to come up with lower pay rates than current MPs.

The result, released this week, therefore retained the big salaries but also brought in some decent-sized increases. Backbench MPs would get a 10.5 per cent increase, with a staggered implementation over their term in Parliament, starting with backpay from the election. Their basic pay would increase by $17,239 to $181,200 by 2026. The Prime Minister's pay would go up to $520,000 by the end of the term.

All politicians are also having their tax-free allowances increased by $2,320 a year, which allows them to buy clothing and luggage and give out koha.

Politicians united in harmony over the pay rises

Curiously, peace has broken out on the issue in Parliament. Politicians across the political spectrum have been united in accepting the pay increases. Unlike in 2017, no politician has called for the pay increases to be refused. Some politicians have even suggested that their “hands are tied,” and they would like to reject the pay increase but don’t have any choice.

Yet, as with Ardern in 2017, they can easily vote to continue the existing pay freeze. As in 2017 and many times in the past, it just takes a simple piece of legislation to do so.

Labour leader Chris Hipkins has also been staunch in his arguments that MPs should accept the pay increase, even criticising Ardern for implementing the pay freeze in 2017: “I do think it was a mistake. I think we should just leave it to the process, and MPs should stay out of it.”

The Green Party has been particularly interesting in their new stance on pay increases. In the past, MP Chloe Swarbrick has spoken out strongly about MPs being “overpaid”, saying, “I feel pretty gross about it”. Now, as co-leader, she emphasised this week that pay increases shouldn’t be politicised: “I think that we end up with a real political football whenever we are engaging in what politicians should be paid or otherwise, and I think that's the point of the independent Remuneration Authority”.

Other MPs say they feel “awkward” talking about the increase. In an interview on Newstalk ZB, Ginny Anderson closed down questions about the pay increase by referring to the public’s economic pain, concluding, “I think there's a general reluctance to talk about how much you're worth.”

Prime Minister Christopher Luxon has even suggested that it would be inappropriate for him or other MPs to talk about their pay rises, given that the pay-setting is supposed to be out of his hands. This is the general line that most MPs have used to deflect from criticisms or questions about the pay increase – to stress the idea that the Remuneration Authority is independent and its judgment is sacrosanct.

It seems that having their own pay increased is the one thing that can unite everyone from Te Pati Māori through to Act. No dissent at all has occurred, which some sceptics might suspect is due to a pre-arranged agreement not to break ranks on the issue. After all, it would only take one party, or even one MP, to dissent and argue that it’s wrong to accept pay increases to their generous salaries. The ensuing public support for this stance would likely force the whole Parliament to come to its senses.

But Parliament currently lacks rebels. If Jacinda Ardern was still in Parliament, would she go along with the consensus for higher MP pay? What about former MPs Sue Bradford, Keith Locke, or the “perk-buster” Rodney Hide? It’s doubtful. They would all be rebelling against this. We would hear speeches about the need for politicians to serve the public, not their own self-interest, by enriching themselves.

The Out of touch entitlement of politicians

What makes the MPs particularly out of touch on their pay rise is that they have been demanding financial restraint from the public. New Zealand has been experiencing a severe cost-of-living crisis for 1.5 years and is dealing with a multitude of crises—from the housing affordability crisis to underfunded infrastructure such as transport systems or hospitals.

Governments of all stripes have been particularly stingy when dealing with the workforce and those in need. For example, the last government was especially tough in pay negotiations with nurses and teachers, saying that the taxpayer couldn’t afford to pay them more. And although it’s been overshadowed since, Labour even started to make significant cuts to the public service before the election.

The new National-led Government has launched even more severe cutbacks, from making thousands of public servants redundant to cutting welfare entitlements and looking to cut back food in schools. The economy is on the brink of another recession, and unemployment increases loom. Interest rates and inflation are still stinging. Overall, real incomes are going backwards at the moment.

Therefore, it's rather ludicrous for politicians to essentially vote themselves a pay increase on their already generous incomes, albeit through the trick of the not-really-independent Remuneration Authority.

It’s especially out of touch that some politicians such Luxon and Hipkins have sought to deflect on the issue by pledging to donate some of their salary to political and charity causes. Notably, none of these politicians have been willing to say which charity they would give their money to. Politicians have a long history of promising to “donate to charity” any taxpayer funds deemed excessive or ill-gotten but refuse to provide any evidence of the follow-through. Often, when politicians pledge to donate to “charity”, they really mean “to their political parties”.

If anything, the public would probably appreciate an element of performance pay in the setting of MP pay. Probably the best way to do this would be to decide upon a ratio that politicians should be paid on compared to the median wage – currently, its MPs are something like three times the average wage, and PMs about nine times the average – and then salaries could only increase by the same proportion as the average wage. Therefore, if society’s incomes are being lifted, then MPs could get an increase.

Alternatively, perhaps other essential workers should start to demand wage settings on the same basis as MPs. MPs' “independent” pay setting could be extended to other workers like teachers and nurses. If they were also paid in line with private sector executives, their salaries would be more consistent with what they do.

Are the politicians meeting our expectations for higher pay?

Have New Zealand’s politicians proven that they deserve their current high pay, to say nothing of a pay increase? Have the various administrations and Parliaments run the country in a way that has satisfied the public? Do they use the public’s money well? Do they behave well enough in Parliament and public?

The signs of this could be better. Towards the end of the last government, one opinion poll rated Labour’s performance 4.7 out of 10. The most recent rating by the same survey was 4.6 out of 10 for the current administration.

We have also seen endless surveys showing that the public’s trust in politicians, Parliament, and political parties is low and declining further. People don’t have a lot of confidence in these institutions. There’s a widespread feeling that politicians are out of touch and that they live in a different world.

For more on these trends, an excellent report was published yesterday on trust and discontent in New Zealand politics and society by Stephanie Worboys: Shaky Foundations: Why our democracy needs trust

The problem is that these sentiments will only be reinforced if MPs accept their pay increase. They will also increase their distance from the public. This is a problem that I wrote about last month – that there is a growing class divide between the political elite and the citizens they represent, especially as MPs become more middle-class and homogenous in a socio-economic sense – see: The Affluent pathway to Parliament

Similarly, I wrote last month about the democratic problems of having politicians who are so overpaid that they don’t understand and experience the problems that ordinary people face – see: Should politicians get a big rise? Or a 7.5 per cent pay cut?

Other recent surveys and reports have shown how angry and discontented the public is. One commentator has described New Zealand as a “powder keg” ready to blow.

Therefore, this is a strange time for politicians to unite to enrich themselves further. If they ever wanted to distance themselves from being seen as part of the Wellington “professional managerial class” or get rid of the notion of being “pigs in the trough,” then that time is now.

Dr Bryce Edwards

Political Analyst in Residence, Director of the Democracy Project, School of Government, Victoria University of Wellington

This article can be republished for free under a Creative Commons copyright-free license. Attributions should include a link to the Democracy Project (https://democracyproject.nz)