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The base salary for senators and members: 2014 update



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RESEARCH PAPER SERIES, 2014-15 27 NOVEMBER 2014

The base salary for senators and members: 2014 update Cathy Madden, Deirdre McKeown, Politics and Public Administration Section Sue Johnson, Statistics and Mapping Section

Contents

Introduction ................................................................................................ 2

Constitutional and legislative basis for payment ........................................... 2

Remuneration Tribunal ................................................................................ 2

Parliamentary base salary—a brief history ................................................... 2

1901-1973 ........................................................................................................ 2

Remuneration Tribunal .................................................................................... 3

Reference Salary—under the PEO Classification .............................................. 4

2011-present ................................................................................................... 4

Percentage increases in the base salary from 1996 ....................................... 5

Increases in the parliamentary base salary compared with average wages from 1968 ................................................................................................... 6

ISSN 2203-5249

Introduction Senators and members receive an annual allowance by way of basic salary—$195,130 from 1 July 2014.1 This research paper explains the legislative basis, fixing and linking mechanisms for the allowance. Adjustments to the base salary since 1968 are provided in Table 1 and Graph 1.

Information on the base salary of state and territory members of parliament is available in a companion Research paper, Parliamentary remuneration and entitlements.

Constitutional and legislative basis for payment Section 48 of the Constitution provides for the payment of Members of Parliament:

Until the Parliament otherwise provides, each senator and each member of the House of Representatives shall receive an allowance of four hundred pounds a year, to be reckoned from the day on which he takes his seat.

Since 1901, the Parliament has enacted legislation to define the parliamentary base salary for the purposes of Section 48 of the Constitution.

The Remuneration and Allowances Act 1990 defines a parliamentary allowance which is consistent with the arrangements whereby the Remuneration Tribunal determines the remuneration of parliamentarians.2 Section 8 provides that salaries and allowances are to be paid out of the Consolidated Revenue Fund.

Section 8A of the Remuneration and Allowances Act 1990 allows the Governor-General to make regulations necessary to give effect to the Act. Remuneration and Allowances Regulations 2005 are now in force.

Remuneration Tribunal The Remuneration Tribunal is an independent statutory body established by the Remuneration Tribunal Act 1973. This legislation allows the Tribunal to inquire into and determine allowances paid out of consolidated revenue to senators and members.3 The Tribunal’s Report 1999/01 states that ‘the Government can choose to accept or reject the Tribunal’s advice on these matters …’.4 In 1974 Parliament disapproved the Tribunal’s determination increasing the base salary to $20,000 per annum. In the decades since then Parliament has also modified determinations, postponed increases and enacted reduced allowances previously determined by the Tribunal as an example of wage restraint.5

The commencement of the Remuneration and Other Legislation Amendment Act 2011 restores the power of the Remuneration Tribunal to determine parliamentary remuneration. The legislation also removes the power of the Parliament to disallow parliamentary remuneration determinations made by the Tribunal.

The base salary for senators and members is $195,130 per annum from 1 July 2014

The applicable Principal Remuneration Tribunal Determination is Determination 2014/10, Members of Parliament-base salary, additional salary for parliamentary office holders, and related matters. The applicable regulations are Remuneration and Allowances Regulations 2005, SLI 2005 No. 308

Parliamentary base salary—a brief history 1901-1973 At the Constitutional Convention at Sydney in 1891, Sir Samuel Griffith said:

One of the first things to be done by the parliament of the commonwealth in its first session would be to settle the salaries of ministers, and a great number of other matters of that kind. We have, therefore, given them power to deal with this subject. We did not think it necessary to make this in any sense a payment of members bill. We lay

1. The choice of phrase to describe the allowance payable under Section 48 of the Constitution is a difficult one. ‘Basic salary’ is commonly used in an informal sense and serves to distinguish it from salaries paid to ministers and office-holders. The authors have chosen to use ‘parliamentary base salary’. Federal parliamentarians are also entitled to other benefits and allowances described in legislation. See C Madden and D McKeown, Parliamentary remuneration and entitlements, Research paper, Parliamentary Library, 2013. 2. See Remuneration Tribunal Act 1973 s3 and s7(1), accessed 12 July 2013. 3. Remuneration Tribunal Act 1973, subsection 7(1). 4. Remuneration Tribunal, Report on Senators and Members of Parliament, Ministers and Holders of Parliamentary Office—salaries and

allowances for expenses of office—December 1999, Report 1999/01. 5. Remuneration Tribunal, 1982 Review, pp. 18-21 and Report 1999/01, op. cit., pp. 1-5.

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down, however, the principle that they, are to receive an annual allowance for their services, and we thought that it should start in the first instance at £500. 6

At the Adelaide Convention, however, the draft constitution bill debated specified an amount of £400 and this was the annual allowance subsequently enacted in the Constitution. 7

In 1907 parliamentarians made themselves liable to the payment of State income taxes.8 Tax concessions for electorate expenses were allowed from 1925.9 In 1907 the Parliament also enacted the Parliamentary Allowances Act 1907, raising the base salary from £400 to £600.

Between 1901 and the establishment of the Remuneration Tribunal in 1973, Parliament adjusted allowances following decisions of executive government or as the result of recommendations from committees of inquiry.10 In 1971 Justice Kerr noted that during this time there was ‘no fixed pattern of approach’ to the timing and method of reviewing base salaries—a process that invariably attracted criticism.11 The Kerr Inquiry suggested the establishment of a ‘Salaries Tribunal … authorised by legislation to review salaries and report at regular stated intervals.’

Kerr also wrote:

Nothing … should prevent the Parliament or the Government from rejecting recommendations or from taking action not in accordance with what is recommended. 12

Remuneration Tribunal From its establishment in 1973, the Remuneration Tribunal, using a range of evidence and indicators, determined the base salary with reference to second division officers of the Commonwealth Public Service.13 Adjustments were then made by applying National Wage Case decisions. In 1979 the Government legislated to remove the Tribunal’s determination that these adjustments be automatic.14

In 1987 the Tribunal convened a conference for interested parties to examine parliamentarians’ salaries.15 An independent review was consequently conducted for the Tribunal in 1988. The resulting report recommended increases based on work value and community pay standards. The review strongly recommended that there be no linkage between the base salary and Australian Public Service (APS) salaries.16 Increases determined by the Tribunal at that time were deferred.

With the Remuneration and Allowances Act 1990, the Government removed the Tribunal’s power to determine base salaries and allowed a phased increase to the allowance over three years. The legislation also provided a link with Senior Executive Service (SES) Band 1 salaries in the APS—in contrast to the recommendation in the 1988 review. Adjustments to the base salary were made by means of national wage case decisions and, from 1992, agreements between the Government and public sector unions.

Legislation enacted in 1994 ensured that the base salary was equivalent to the minimum APS SES Band 2 salary level. The then Workplace Relations Act 1996 enabled SES salaries to be set through individual Australian Workplace Agreements (AWAs), thereby removing the standard against which the base salary was determined.

6. S Griffith, Official Report of the National Australasian Convention Debates, Sydney, 2 April 1891, p. 654. 7. Official Report of the National Australasian Convention Debates, First Session, Adelaide, 22nd March to 23rd April 1897, pp. 1032-34. 8. Commonwealth Salaries Act 1907, Act no 7 of 1907.

9. E Page, House of Representatives, Debates, 4 June 1947, p. 3355. An Electorate Expense Allowance, not subject to income taxation, was paid from 1952. 10. Including—Report of the Committee of Enquiry into the Salaries and Allowances of Members of the National Parliament (Nicholas Report), 1952; Report of the Committee of Enquiry into the Salaries and Allowances of Members of the Commonwealth Parliament (Richardson

Report), 1955; Report of the Committee of Enquiry into the Salaries and Allowances of Members of the Commonwealth Parliament (Richardson Report), 1959; Salaries and Allowances of Members of the Parliament of the Commonwealth: A Report of Inquiry by Mr Justice Kerr, (Kerr Report), 1971. 11. Mr Justice Kerr, ibid., p. 12. 12. Ibid., p. 16. 13. With the enactment of the Public Service Reform Act 1984, the Second Division of the Commonwealth Public Service was replaced by the SES.

See Public Service Reform Bill 1984, Bills Digest, no. 72, 1984, p. 2. 14. Remuneration and Allowances Act 1979. 15. Remuneration Tribunal, 1987 Review, pp. 5-12. 16. Cullen Egan Dell, Report on the pay and allowances for members of parliament: prepared for the Remuneration Tribunal, 1988, pp. 18-19.

The base salary for senators and members: 2014 update 3

With the expiry of the final APS Enterprise Agreement at the end of 1996, the mechanism by which adjustments were made to the base salary ceased.

Legislative changes to the APS in 1999, among other matters, amended the Remuneration and Allowances Act 1990 and the Remuneration Tribunal Act 1973.

Reference Salary—under the PEO Classification In Report 1999/01 the Tribunal recommended that the base salary be linked to a reference salary under the Principal Executive Office (PEO) Classification Structure.17 The Government accepted this recommendation and introduced the Remuneration and Allowances Regulations 2005 to create the link. The Regulations provide for the reference salary to be 100 per cent of the rate determined by the Remuneration Tribunal for Band A of the PEO Classification.

The Remuneration Tribunal’s amending Determination 2008/10 increased Reference Salary A in the PEO Classification by 4.3 per cent to $132,530 from 1 July 2008. Consequently, for the purposes of the base salary in 2008-09, the Remuneration and Allowances Regulations reduced Reference Salary A by 4.3 per cent.

On 26 May 2008, the Rudd Government introduced the Remuneration and Allowances Amendment Regulations 2008 (No. 1) amending the Remuneration and Allowances Regulations 2005 to freeze the base salary at $127,060 per annum. Rather than 100 per cent of Reference Salary A, Regulation 5 described the percentage as:

Regulation 5 Remuneration and allowances of Senators and Members of the House of Representatives

(2) For the financial year commencing on 1 July 2008, and for each subsequent financial year:

(a) the percentage is the percentage of the reference salary which, when applied to the reference salary, reduces the reference salary by the amount (in whole dollars) by which the reference salary was increased by the Remuneration Tribunal for the financial year commencing on 1 July 2008

For the purpose of calculating the base salary, Regulation 5 had the effect of reducing Reference Salary A in the PEO Classification by the percentage necessary to arrive at the rate payable at 30 June 2008, that is, $127,060.

On 20 June 2011 the Remuneration Tribunal released Determination 2011/11 Principal Executive Office (PEO) Classification Structure and Terms and Conditions which set Reference Salary A at $146, 380. On the basis described above, that is Reference Salary A less $5470, the parliamentary base salary increased to $140,910 with effect from 1 July 2011.

Under the Remuneration Tribunal Act 1973, the Tribunal had wide scope to consider factors when reviewing the PEO Classification. The Tribunal indicated that these factors included: key economic indicators; other specific indicators such as the Wage Price Index; salary outcomes in the public (and to a lesser degree) private sector; the principles of wage determination and decisions of the Australian Industrial Relations Commission. 18

2011-present In 2009 an Australian National Audit Office (ANAO) report, Administration of parliamentarians’ entitlements by the Department of Finance and Deregulation, highlighted shortcomings in the management of MPs’ entitlements.19 In September 2009, in response to the ANAO report, the Government set up a committee to review parliamentary entitlements, chaired by former senior public servant, Barbara Belcher.

In 2011 the Government accepted the recommendation of the Report of the committee for the review of parliamentary entitlements to restore the power of the Remuneration Tribunal to determine parliamentary base salary.20 The legislation, the Remuneration and other Legislation Amendment Bill 2011, also removed the power of the Parliament to disallow parliamentary remuneration determinations made by the Tribunal. The Bill passed both Houses on 23 June 2011 and received assent on 25 July 2011, commencing on 8 August 2011.

17. The PEO classification structure provides a framework for the negotiation of the terms and conditions of PEO employment. 18. Remuneration Tribunal, Explanatory Memorandum: Determination 2004/15 - Principal Executive Office (PEO) Classification Structure Terms and Conditions. WCI is a product of the Australian Bureau of Statistics. The Tribunal’s Report 1999/01 highlights some of the factors given consideration by the Tribunal during earlier deliberations.

19. Australian National Audit Office, Administration of parliamentarians’ entitlements by the Department of Finance and Deregulation, ANAO, 2009, accessed 12 July 2013. 20. Report of the Committee for the Review of Parliamentary Entitlements (the Belcher review), April 2010, p. 12, accessed 12 July 2013.

The base salary for senators and members: 2014 update 4

On 15 December 2011 the Remuneration Tribunal issued its initial report on the work value assessment of parliamentary remuneration.21 The Tribunal also issued a Statement outlining its recommendations and next steps. 22 The main recommendations included:

on the basis of a work assessment of parliamentarians, that parliamentary base salary should be set at $185,000

On 13 March 2012 the Tribunal issued the first Determination setting the base salary of $185,000 for Members of Parliament to take effect from 15 March 2012.23

On 19 June 2012 the Tribunal issued Determination 2012/15: Members of Parliament - Base salary, entitlements and related matters which increased MPs’ base salary by 3 per cent to $190,550 from 1 July 2012.24

On 18 June 2013, the Tribunal issued Determination 2013/13: Members of Parliament - Base salary, additional salary for Parliamentary office holders and related matters which increased the base salary by 2.4 per cent to $195,130 from 1 July 2013.25

In its 2014 Annual review of Remuneration for Holders of Public Office, the Remuneration Tribunal determined that there would be no annual adjustment to remuneration for offices in its jurisdiction from 1 July 2014 for one year. This includes parliamentarians and office holders as well as other principal executive offices.26 Determination 2014/10 Members of Parliament-base salary, additional salary for parliamentary office holders, and related matters gives effect to this decision. 27

Percentage increases in the base salary from 1996 Since 1996, the base salary has increased by the following (in actual dollars):

• 7 March 1996—1.6 per cent • 17 October 1996—1.2 per cent • 7 December 1999—4.45 per cent, the first stage of a 9.95 per cent two-stage increase • 1 July 2000—5.5 per cent, the second stage of the 9.95 per cent increase • 1 July 2000—2.2 per cent by virtue of an adjustment to the PEO Classification Structure • 1 July 2001—3.9 per cent • 1 July 2002—3.35 per cent • 1 July 2003—4 per cent • 1 July 2004—3.9 per cent • 1 July 2005—4.1 per cent and • 1 July 2006—7.01 per cent • 1 July 2007—6.8 per cent • 1 October 2009—3.1 per cent • 1 August 2010—3.8 per cent • 1 July 2011—3.6 per cent • 15 March 2012—31.3 per cent • 1 July 2012—3.0 per cent • 1 July 2013—2.4 per cent • 1 July 2014—0 per cent

21. Remuneration Tribunal, Review of the Remuneration of Members of Parliament: Initial report, 15 December 2011, accessed 12 November 2014. 22. Remuneration Tribunal, Reports, Members of Parliament, Secretaries of Departments, Specified Statutory Offices, Statement, 15 December 2011, accessed 12 November 2014. 23. Remuneration Tribunal, Determination 2012/02: Members of Parliament—Base salary and related matters, 12 March 2012, accessed

12 November 2014. 24. Remuneration Tribunal, Determination 2012/15: Members of Parliament—Base salary, entitlements and related matters, 19 June 2012, accessed 12 November 2014. 25. Remuneration Tribunal, Determination 2013/13: Members of Parliament - Base salary, additional salary for Parliamentary office holders and

related matters, 18 June 2013, accessed 12 November 2014; Remuneration Tribunal, Determination 2013/13 Members of Parliament - Salary statement of reasons, June 2013, accessed 12 November 2014. 26. Remuneration Tribunal, 2014 Review of Remuneration for Holders of Public Office, Statement, 12 May 2014, accessed 10 November 2014. 27. Remuneration Tribunal, Determination 2014/10: Members of Parliament—Base salary, additional salary for parliamentary office holders, and related matters, 14 May 2014 , accessed 10 November 2014.

The base salary for senators and members: 2014 update 5

Increases in the parliamentary base salary compared with average wages from 1968 During the 1980s the MPs’ base salary failed to keep up with inflation resulting in a decline in value in real terms. This was in contrast to the average which kept ahead of inflation and grew, in real terms, at an annual average rate of 0.3 per cent.

As a result the base salary, which had been three times the average wage in 1975, was only twice the average wage in 1991. During the 1990s MPs were given increases to their base salary which allowed some catch up with average wages. However, despite this by 2011 the base salary was still only 2.2 times the average wage.

In March 2012 MPs received an increase to their base salary of 31.3 per cent. This resulted in a significant increase in the value of the salary relative to average wages. At 2.8 times the average annual wage it is at its highest level in 37 years.

The freeze on MPs’ pay for a year (beginning 1 July 2014) reduces the gap with average weekly earnings.

Table 1: Base salary compared with average wages 1968-2014

Base salary ($ per annum)

Male total average wages ($ per annum) (b) Ratio allowance to average

wages Year Date of effect Current prices Real prices (2014 dollars) (a)

Current prices Real prices (2014 dollars) (a)

1968 1.12.68 9 500 109 353 3 525 40 572 2.7

1973 1.4.73 14 500 134 697 5 256 48 823 2.8

1975 1.3.1975 20 000 138 431 6 987 48 359 2.9

1975 15.5.1975 20 720 138 876 7 597 50 918 2.7

1975 9.9.1975 20 000 133 208 7 659 51 014 2.6

1976 1.6.1976 21 250 127 140 8 739 52 284 2.4

1977 1.6.1977 24 369 128 392 9 656 50 876 2.5

1978 1.7.1978 25 692 125 382 10 637 51 908 2.4

1979 1.7.1979 26 720 119 900 11 606 52 081 2.3

1979 23.11.1979 27 575 117 277 12 091 51 424 2.3

1980 1.7.1980 28 816 116 474 13 139 53 109 2.2

1980 1.8.1980 30 026 121 365 13 139 53 109 2.3

1981 1.7.1981 36 000 134 239 14 771 55 080 2.4

1981 1.7.1981 33 013 123 101 14 771 55 080 2.2

1982 1.7.1982 36 000 121 029 17 201 57 828 2.1

1982 1 10 1982 38 500 125 066 17 602 57 181 2.2

1983 6.10.1983 40 156 119 453 18 875 56 147 2.1

1984 1.5.1984 41 802 121 951 20 011 58 380 2.1

1985 1.7.1985 42 889 117 060 21 018 57 365 2.0

1986 1.7.1986 45 543 114 561 22 796 57 341 2.0

1986 10.3.1987 46 065 107 688 23 176 54 180 2.0

1987 1.7.1987 47 815 110 078 23 828 54 856 2.0

1988 1.7.1988 49 180 105 642 25 350 54 455 1.9

1989 1.1.1989 55 000 113 760 27 483 56 845 2.0

1990 16.11.1989 55 000 105 516 28 156 54 016 2.0

1990 1.7.1990 58 300 108 126 29 339 54 414 2.0

1991 1.1.1991 61 798 110 922 30 533 54 804 2.0

1991 1.7.1991 64 768 116 253 30 001 53 850 2.2

1991 15.8.1991 66 387 118 556 30 001 53 577 2.2

1992 17.12.1992 67 715 119 318 31 258 55 078 2.2

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Base salary ($ per annum)

Male total average wages ($ per annum) (b) Ratio allowance to average

wages Year Date of effect Current prices Real prices (2014 dollars) (a)

Current prices Real prices (2014 dollars) (a)

1993 11.3.1993 68 663 119 990 31 868 55 690 2.2

1994 1.1.1994 68 663 118 814 32 619 56 443 2.1

1994 10.3.1994 69 693 120 008 32 619 56 168 2.1

1994 15.12.1994 74 460 125 562 33 620 56 693 2.2

1995 12.1.1995 75 949 128 073 33 990 57 318 2.2

1995 6.4.1995 77 438 128 537 34 115 56 627 2.3

1995 13.7.1995 78 987 129 285 34 240 56 044 2.3

1996 7.3.1996 80 251 128 377 34 949 55 909 2.3

1996 17.10.1996 81 856 129 575 35 507 56 207 2.3

1999 7.12.1999 85 500 131 034 38 657 59 244 2.2

2000 1.7.2000 92 000 138 786 39 522 59 621 2.3

2001 1.7.2001 95 600 135 893 41 034 58 329 2.3

2002 1.7.2002 98 800 136 592 42 963 59 397 2.3

2003 1.7.2003 102 760 138 451 45 310 61 047 2.3

2004 1.7.2004 106 770 140 285 46 248 60 765 2.3

2005 1.7.2005 111 150 142 503 48 907 62 703 2.3

2006 1.7.2006 118 950 146 645 51 045 62 930 2.3

2007 1.7.2007 127 060 153 428 53 861 65 038 2.4

2008 1.7.2008 127 060 146 896 55 738 64 439 2.3

2009 1.10.2009 131 040 147 944 60 623 68 443 2.2

2010 1.8.2010 136 040 150 382 61 702 68 208 2.2

2011 1.7.2011 140 910 150 427 64 471 68 826 2.2

2012 15.3.2012 185 000 196 111 66 995 71 018 2.8

2012 1.7.2012 190 550 200 988 67 000 70 670 2.8

2013 1.7.2013 195 130 201 014 70 754 72 888 2.8

2014 1.7.2014 195 130 195 130 71 171 71 171 2.7

Annual average percentage change

1968 to 2013 1.1 1.0 1.1 1.0

1970 to 1980 11.7 0.6 14.1 2.7

1980 to 1990 6.7 -1.0 7.9 0.2

1990 to 2000 5.3 2.8 3.4 1.0

2000 to 2010 4.0 0.8 4.6 1.4

2013 to 2014 (c) 0.0 -2.9 0.6 -2.4

(a) adjusted for inflation with the Consumer Price Index (CPI) to June 2014 prices (b) average weekly wages annualised; male average wage is used as the measure as it provides a long term, relatively consistent time series on average earnings data back to 1968 (c) wages growth to May 2014 and MPs’ base salary to 1 July 2014 Sources: Data on MP’s allowance from Commonwealth Acts and Remuneration Tribunal Reports and Determinations. Average wages and deflators from ABS, Consumer price index, Australia, Sep 2014, cat. no. 6401.0. Average weekly earnings, Australia, May 2014, cat. no. 6302.0. Real values calculated by the Parliamentary Library

The base salary for senators and members: 2014 update 7

Graph 1: Base salary for members of parliament and average weekly wages index—real terms

Graph 1 provides data until July 2014 figure, but the axis labels are set to show every two years from Dec 1968.

Table 1, Graph 1 and commentary on the comparison of MPs’ base salary and real wages by Sue Johnson, Statistics and Mapping Section.

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