Cabinet decides to change law for Remuneration Authority to ensure future pay increases in line with rest of public sector

Cabinet decides to change law for Remuneration Authority to ensure future pay increases in line with rest of public sector

By Bernard Hickey

Prime Minister John Key has announced the Cabinet decided today to urgently change the law governing the Remuneration Authority to ensure pay for Members of Parliament rose in line with the rest of the public sector.

The move came after the Authority announced pay increases for MPs of around 3.5% last week, defying submissions from Key that no pay increase was appropriate when the Government was asking for pay restraint.

"That increase was neither necessary nor justified at a time when inflation is at 0.8%," Key said.

"While the decision was made independently of MPs, they should not be receiving increases which are disproportionate to the wider public sector," he said.

Key said the law change was necessary because the Authority cited criteria in the 1977 Act to justify the pay increases.

"The change will take away the Authority's discretion when setting MP pay. The sole criteria will now be the average public sector pay increase for the previous year," Key said.

Key said the decision was not taken lightly given the law was decades old and he expected the new arrangements to last for decades.

"However, it is clear that changing the criteria upon which that rate is set is the only way to ensure the Authority will start handing down more modest pay increases."

1-2% increase likely

The new legislation would be back-dated to July 1, 2014, meaning the pay increases announced last week would not be awarded.

"Based on the most recent data, total remuneration will instead increase by something in the range of 1 - 2%, reflecting average wage growth in the public sector," Key said.

He later told a news conference he sympathised with teachers unions who had complained last week that they were being told to be restrained in their pay demands while MPs were getting much bigger increases. "I don't think they should be getting less than what MPs are getting," he said.

The new law would be introduced under urgency in the next sitting session.

Key denied the Remuneration Authority's recommendations that MPs' pay rise as fast as other high paid professionals and managers indicated there was a problem of growing income inequality across the wider economy. He said public sector pay increases recently had been lower than the Authority's recommendations for MPs.

Key said it was up to private sector CEOs to make their own decisions about their own pay if they were also calling on their workers to show restraint.

"Sometimes their pay is very volatile because of bonus payments and sometimes they take massive pay cuts because they don't get a bonus payment. The private sector under a National-led Government has been rising at a slightly faster than the public sector," he said.

"As politicians and the Government we send very strong signals about what we can afford for the public sector and I don't think it's right that we should be saying to the public sector: 'We think living within our means is 1-2%, but by the way, an independent body, despite all the things that we tell them very directly and very plainly, is going to give us more than that. In the end they've said this is the reason why we're doing that, so we're changing the law," he said.

"The current Act suggests to them that they should be looking at relativity with other parts of employment, including the private sector. They strongly feel that they should be moving cabinet ministers and me as Prime Minister up to a level that is more reflective of what we would earn in the private sector."

Key said MPs could potentially receive backdated pay increases to July last year under the Remuneration Authority's ruling from last week, but that they would be expected to return that money.

"Lots of people would get overpaid, and then get it deducted off them the following week," he said.

Political reaction

Green Party Co-Leader Metiria Turei welcomed the changes to rules setting pay for MPs.

“We’ve argued for MPs’ salaries to be linked to the nominal median income, and we still think this is the best option, but linking them to public sector incomes is a definite improvement on the current system," Turei said.

“The Green Party policy is that MPs’ salaries should increase or decrease by the same dollar amount that the median individual income increases or decreases," she said.

The Public Service Association said the Government's decision could not be justified in withholding decent pay increases for public servants.

“While this may stop the complaints about excessive MP pay rises, public servants will still feel aggrieved,” PSA National Secretary Richard Wagstaff said.

“A 1% pay rise on John Key’s $400,000+ salary is a lot bigger than the same percentage on the salary of a hard-working hospital administrator paid below the living wage. If Mr Key thinks that he can justify below inflation pay increases for the people who keep this country running by taking the same percentage, he’s only kidding himself," Wagstaff said.

Solid Energy 'in a delicate position'

Elsewhere, Key was asked if the Government would have to bail out Solid Energy for a third time after the board said last Friday it could not sign off on its accounts and TSB Bank wrote off NZ$54 million of loans to the state-owned coal miner. Chairwoman Pip Dunphy also resigned last week,

Key said Solid Energy was in a "delicate position," noting the board changes and that the company was in discussions with its banks.

He said he would not want to speculate on whether the Government would commit more funds to Solid Energy.

"They're in very delicate negotiations with the banks," he said when asked if Solid Energy would have to cut staff or shut more mines.

"It's sooner, as opposed to later in terms of resolving the next steps," he said.

Key said Solid Energy was not trading solely on its Government Guarantee and still had equity and cash in the bank.

He said he knew why Dunphy resigned, but suggested media talk to the board and would not speculate on whether her resignation related to any Government indemnity for directors.

He also said he expected the situation would be resolved before the May 21 Budget.

Key said putting more cash into Solid Energy was not the Government's preferred option. He denied the banks were now in control of Solid Energy, but acknowledged they were in discussions with the company about trying to recover their money.

(Updated with reaction, more detail, Solid Energy update)

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

19 Comments

Sounds to me like a government move to damage control mode.

Not a moment too soon - it's obscene that taxpayers have to endure public servants enriching other public servants without private sector checks and balances such as dismissal for abject failures to manage - witness the recent Solid Energy and NZ Super Fund debacles.

I love the Green Party position! Incentivise the politicians on the median wage. Excellent. Probably okay to leverage it though, maybe 10 times the change in the median wage (up and down) would get the silly b......s to focus on solving real problems.
 
On second thoughts that might lead to slightly (ahem) inflationary policy, but it would be worth it.
 
Or, what about actually paying them the median wage, they deserve it.

The thirty pieces of silver are obviously burning holes in politicians' hands.
 
The method used by the Remuneration Authority is absolutely bog standard industry practice by linking MP remuneration to similarly sized jobs mostly management-type jobs in the public and private sector.
 
The higher than average remuneration rises enjoyed by MP's over the last 30 years are ample reward for tilting the legislative environment in favour of employers and away from labour. As firms have wrung more productivity from workers (more work less pay) the new profits have been shared out disproportionately to management rather than owners.
 
So as management remuneration has soared our politicians have received the indirect thanks of that group in the form of similar pay rises.
 
And now, thirty years later, our elected representatives get a fit of conscience?

No fit of conscience whatsoever - given JK's made a unilateral decision to reverse pay rises already granted in accordance with the current law - he's entering very murky territory by introducing - under urgency (a process of law change that in itself is another abuse of executive power) - retrospective legislation. 
 
I'm guessing any MP who refuses to return their backpay (pay that was legally granted) would have a very good case for judicial review - a smart opposition would indeed do so ... it's not a matter of the additional money that would accrue to politicians (peanuts in terms of overall government expenditure) .. instead JK's intent is all about wanting to take leverage away from the whole of the public service (particularly the health sector and aged care workers) who are grossly underpaid by his government.
 
In other words - we didn't take it, so you can't have it either.  He is undermining collective bargaining - yet again.
 
 
 

Good that he's changing the "pig's trough" law then isn't it.

 
higher Salaries/ Remuneration board _clearly_ out of touch  with reality and "this companies" policy (ie tightening government excess spending).

 
good on JK, getting one right.

There is devil in the detail here, as this move could severely restrict public servants, nurses, teachers etc, also able to negotiate decent pay rises.

Not likely to make it worse IMHO.
On top of that when inflation is <1% its hard to fathom what ppl think is "decent".  3.5% is as far as I am concerned obscene.
Bear in mind (simplistically) that when someone gets say 2% someone else gets 0% to balance at 1%.
 
 
 

Well we know why this was done, damage control as Colin has said, why then won't they listen to the public about other things they believe are important, like foreigners buying land and houses and the TPPA

Remuneration Authority can't do as it is asked by the PM !!!!  Tip of the iceberg stuff !!!
 
Who did the Treasury review of EQC and informed Brownlee that all was good !!!
http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/66823...
 
And staying on EQC - what's this going to cost?
http://www.stuff.co.nz/the-press/news/66816055/Shoddy-quake-repairs-reve...
 
 
Then there is this lot!!
http://www.stuff.co.nz/the-press/news/66849182/Ministry-prosecuted-over-...
 
And more
http://www.stuff.co.nz/southland-times/66807163/private-health-details-o...
More
http://www.stuff.co.nz/national/66804536/David-Bain-compensation-case-Ta...
 
And that is just a quick flick through todays news JK...these public servants are screwing up everywhere!!
 

Remuneration Authority can't do as it is asked by the PM !!!!  Tip of the iceberg stuff !!!
And that is just a quick flick through todays news JK...these public servants are screwing up everywhere!!
 
Are they in need of a little bit of Putin in their lives?
The Russian president has ordered salary cuts of 10 percent for all members of his administration, Vladimir Putin’s press secretary, Dmitry Peskov, who is also deputy head of the administration, has told reporters. Read more

They were setup in legislation as independant I believe, hence no they dont have to listen to JK.  The change looks to be about 15years too late IMHO.
The ECQ thing was of the 14 who complained 13 were found "dodgy" out of 65,000.  So really we can conclude little except look closer is needed. Otheriwise 64987 people were happy/Ok and 13 were not.
Can you do math and figure out the failure rate?
"However, the review found the MSD could not have prevented the shooting."
How do you suggest they are kept safe? armour plate and armed guards? Im sure you will then whine on the cost of it.  (though I dont think armed guards can be done under the present legislation ie you cant get a FAL/gun based in the need for self-defence).  How will the ppl needing help feel if they are talking behind armoured glass with security guards present?  Have  you considered that adding such guards could double the wage bill? and you whine about costs as it is.
On to of that the case has not as yet been proven.
Health leaks, you know ppl are human and misatkes happen, sometimes such mistakes are a sign of over-work and stress.
David Bain well if he isnt guilty then yes he should get a payout to cover a [partially] ruined life.

The EQC thing is actually another report which will investigate 100 repairs....and as I live here and see the crap repairs I think I'm in a reasonable position to know that repairs to the repairs will take years.
You have missed the point on public servants making enormous errors everyday and the cost of those errors to the taxpayer??? In fact the ultimate people who pay for these errors is the business community as they have to generate all income first before anything else can be spent, taxed etc!!!

Private businesses make errors, they both have a common factor, humans. 
No I have not missed these small errors, no one is perfect we are humans. 
[ ... please lay off the personal insults. Ed]
In terms of repairs are they done by private builders badly with the EQC not inspecting properly or are the builders doing bodge ups?  I for one have seen enough of the latter to know which way to bet.

I reckon John Key is doing the right thing . He needs to send a message to all levels of Government employees  about the NZ Gravy Train.
Its like a train in India , too many people in it ,  on top of  it , and hanging on it  , and far too  many getting a free ride
Its time Public servants take notice , particularly at local Gvernment like Aucklasnd council where the head of wastewater earns more than the Governor of the Reserve Bank , and crane drivers and dockworkers in a Para-Statal enterprise ( Ports of Auckland ) earn more that Doctors at North Shore Hospital .
Its a disgraceful state of affairs

just to clarify "getting a free ride" doesn't mean they aren't skilled, don't work hard, and don't put in the hours.  
  It refers to the fact that their efforts don't create a marketplace return - in the private world someone has to be "at the coalface" making sure the product or service _sells_.

 If there aren't profitable sales, there isn't sales revenue, and the money stream to provide the product or service...and the pay those doing the job... all dry up.     The only way to keep such non-returning projects, is to give them "a free ride" by syphoning funds off elsewhere.

We are reaching a point where the "free ride" of government doing projects which don't return enough profit to the economy to support the project and project team is causing problems with the private workforce from which they syphon off their funding to make the difference.

This is quite smart, he has cornered the opposition and minor parties.  They have no choice but support the proposed legislation! They can’t oppose it for the risk of being labelled as greedy.

Not at all, the Green's having being saying similar though tougher for some weeks. 
http://www.scoop.co.nz/stories/PA1503/S00011/green-party-welcomes-change...
“We’ve argued for MPs’ salaries to be linked to the nominal median income, and we still think this is the best option, but linking them to public sector incomes is a definite improvement on the current system."
“The Green Party policy is that MPs’ salaries should increase or decrease by the same dollar amount that the median individual income increases or decreases.”
So the Green's position is more severe, ie if the private sector is suffering worse than the Public sector, MPs salary increase will reflect this.
What it really suggests is the considerable public dis-quiet, he didnt think he could ignore.

The Green MPs might be a bit two-faced here. They each have to tithe 10% to the Party and this is a substantial source of party funding. The party benefits from increases, loses without them. You have to wonder if they would hold their policy if they controlled government. 
 
If they did, I would support that.