The government is restoring the Remuneration Authority's independence to calculate MPs' pay to put a stop to excessive pay rises.

Photo: 123rf

Workplace Relations Minister Iain Lees-Galloway has announced a review of the way MPs' pay increases are calculated has been completed, and the government has agreed on a fairer system.

In 2015, following concern about big pay increases, former Prime Minister John Key changed the way the Remuneration Authority calculated pay rises, introducing a set formula.

Last year, Parliament froze MPs' salaries and allowances after finding the proposed pay increases under the formula was "unacceptably high".

"In 2015, MPs took control of the way that their pay increases were calculated by replacing the Remuneration Authority's independence with their own preferred formula.

"The changes were a failure, with this formula generating higher pay increases than the system used prior to 2015."

Photo: Supplied.

Mr Lees-Galloway said the government would repeal the changes and restore the authority's ability to calculate increases in a "fair and transparent manner".

"This means MPs' pay will be calculated using the same process for reviewing the remuneration of other key public office holders," he said.

He denied this meant a return to a problematic system.

"People thought it was problematic at the time, thought they were coming up with a solution and unfortunately the solution had exactly the opposite effect of what was intended.

"I believe that the Remuneration Authority has ability as an independent organisation to set levels of pay for Members of Parliament that are appropriate and acceptable to the public."

The Remuneration Authority will base their decision on criteria outlined in the Remuneration Authority Act:

The need to achieve and maintain fair relativity with the levels of remuneration received elsewhere

The need to be fair both to the people whose remuneration is being determined and taxpayers or ratepayers

The need to recruit and retain competent persons

The requirements of the position concerned

The conditions of service enjoyed by people in comparable situations

Any countervailing economic conditions (eg an economic recession)

Future reviews of MPs' pay will occur once every three years, following an election, and will set MPs' pay on a year-by-year basis over the parliamentary term.

A bill to implement these changes will be introduced to Parliament tomorrow.

The Green Party was disappointed however that the government was not going further.

Green co-leader Marama Davidson said while it was a good step, the government should be doing more than just returning to the way things were before 2015, and MPs' pay should be linked to the average annual wage increases of New Zealanders.

"It's not good enough for MPs' salaries to get further and further away from what the rest of the country and our citizens are now earning, so we're gonna be really loud about that."