4 October 2018

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Cathy Madden, Deirdre McKeown, Politics and Public Administration Section

Sue Johnson, Statistics and Mapping Section

Contents

Introduction

Constitutional and legislative basis for payment

Remuneration Tribunal

Parliamentary base salary—a brief history

Percentage increases in the base salary from 1996

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

Introduction

Senators and members receive an annual allowance by way of basic salary—$207,100 from 1 July 2018.[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.

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.

Subsection 14(2) of the Parliamentary Business Resources Act 2017 (PBR Act) provides that remuneration must include a determination of an annual allowance payable for the purposes of section 48 of the Constitution known as base salary.[2] Section 59 provides that salaries and allowances are to be paid out of the Consolidated Revenue Fund.

Section 61 of the PBR Act allows the Governor-General to make regulations necessary to give effect to the Act. The Parliamentary Business Resources Regulations are now in force.

Remuneration Tribunal

The Remuneration Tribunal is an independent statutory body established by the Remuneration Tribunal Act 1973. The PBR Act allows the Tribunal to inquire into and determine remuneration and allowances paid out of consolidated revenue to senators and members.[3] In 1974 Parliament disapproved the Tribunal’s determination increasing the base salary to $20,000 per annum. Since that time the Parliament has also modified determinations, postponed increases and enacted reduced allowances previously determined by the Tribunal as an example of wage restraint.[4]

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

The base salary for senators and members is $207,100 per annum from 1 July 2018 The applicable Principal Remuneration Tribunal Determination is Determination 2018/10, Members of Parliament–base salary, additional salary for parliamentary office holders, and related matters.

Parliamentary base salary—a brief history

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 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.[5]

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.[6]

In 1907 parliamentarians made themselves liable to the payment of State income taxes.[7] Tax concessions for electorate expenses were allowed from 1925.[8] 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.[9] 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.[10] 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.[11]

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.[12] 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.[13]

In 1987 the Tribunal convened a conference for interested parties to examine parliamentarians’ base salary.[14] 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.[15] 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. 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.[16] The Government accepted this recommendation and introduced the Remuneration and Allowances Regulations 2005 to create the link. The Regulations provided 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.[17]

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 Members of Parliaments’ (MPs) entitlements.[18] 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.[19] 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.

On 15 December 2011 the Remuneration Tribunal issued its initial report on the work value assessment of parliamentary remuneration.[20] The Tribunal also issued a Statement outlining its recommendations and next steps.[21] 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 a Determination setting the base salary of $185,000 for MPs to take effect from 15 March 2012.[22]

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.[23]

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.[24]

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 included parliamentarians and office holders as well as other principal executive offices.[25] Determination 2014/10 Members of Parliament–base salary, additional salary for parliamentary office holders, and related matters gave effect to this decision.[26]

In May 2015 the Tribunal deferred the determining of an annual adjustment until later in the year.[27] On 9 December the Tribunal determined that all offices in its jurisdiction would receive a 2.0 per cent increase, effective 1 January 2016.[28]

Following the 2016 review of an independent parliamentary entitlements system the Government commenced a major overhaul of the remuneration and entitlements framework.

The Independent Parliamentary Expenses Authority Act 2017 established the Independent Parliamentary Expenses Authority (IPEA) with effect from 1 July 2017. IPEA has the role of advising, monitoring, reporting, auditing and processing functions relating to the work expenses, travel expenses and travel allowances of members of parliament, certain travel expenses of former members of parliament and the travel expenses and travel allowances of staff employed under the Members of Parliament (Staff) Act 1984.

The Parliamentary Business Resources Act 2017 (PBR Act) and the Parliamentary Business Resources (Consequential and Transitional Provisions) Act 2017 (PBR (CTP) Act) received Royal Assent on 19 May 2017 and commenced 1 January 2018. The PBR Act establishes the new parliamentary work expenses framework. It is a principles-based framework to cover parliamentarians' work expenses, requiring that the dominant purpose be parliamentary business for any expense claimed and an overriding principle of value-for-money for the Commonwealth.

The PBR Act and the PBR (CTP) Act replaced the Parliamentary Entitlements Act 1990 and related legislation.

On 22 June 2017 the Remuneration Tribunal announced its decision to increase remuneration by two per cent for public offices in its jurisdiction, with effect from 1 July 2017. This included the base salary of MPs. In its June 2017 Statement, 2017 Review of remuneration for holders of public office, the Remuneration Tribunal stated that this ‘represents an increase of 1.6 per cent per annum over the 18 months since the last general increase decided by the Tribunal, effective from 1 January 2016’.[29]

Remuneration Tribunal Determination 2017/12 stated that the base salary of an MP would increase from $199,040 to $203,030 per annum from 1 July 2017.

On 23 June 2018 the Tribunal announced an increase of two per cent for public offices in its jurisdiction, with effect from 1 July 2018. The base salary of an MP increased to $207,100.[30]

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

1 January 2016—2.0 per cent

1 July 2017—2.0 per cent

1 July 2018—2.0 per cent

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 almost 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 was at its highest level in 37 years.

The freeze on MPs’ pay for a year (beginning 1 July 2014) reduced the gap with average weekly earnings. There was no increase in MPs’ base salary in 2015. Since then, the ratio has fluctuated between 2.7 and 2.8.

Table 1: Base salary compared with average wages 1968–2018

Annual allowance

($ per annum) Male total average wages

($ per annum) (b) Year Date of effect Current prices Real prices

(June 2018 dollars) (a) Current prices Real prices

(June 2018 dollars) (a) Ratio - allowance to average wages 1968 1.12.1968 9 500 116 685 3 525 41 530 2.7 1973 1.4.1973 14 500 143 728 5 256 49 975 2.8 1975 1.3.1975 20 000 147 712 6 987 49 501 2.9 1975 15.5.1975 20 720 148 187 7 597 52 120 2.7 1975 9.9.1975 20 000 142 138 7 659 52 219 2.6 1976 1.6.1976 21 250 135 664 8 739 53 518 2.4 1977 1.6.1977 24 369 137 000 9 656 52 077 2.5 1978 1.7.1978 25 692 133 788 10 637 53 134 2.4 1979 1.7.1979 26 720 127 939 11 606 53 311 2.3 1979 23.11.1979 27 575 125 140 12 091 52 638 2.3 1980 1.7.1980 28 816 124 283 13 139 54 363 2.2 1980 1.8.1980 30 026 129 501 13 139 54 363 2.3 1981 1.7.1981 36 000 143 239 14 771 56 380 2.4 1981 1.7.1981 33 013 131 355 14 771 56 380 2.2 1982 1.7.1982 36 000 129 143 17 201 59 193 2.1 1982 1.10.1982 38 500 133 451 17 602 58 531 2.2 1983 6.10.1983 40 156 127 461 18 875 57 472 2.1 1984 1.5.1984 41 802 130 127 20 011 59 758 2.1 1985 1.7.1985 42 889 124 909 21 018 58 719 2.0 1986 1.7.1986 45 543 122 241 22 796 58 695 2.0 1986 10.3.1987 46 065 114 908 23 176 55 459 2.0 1987 1.7.1987 47 815 117 459 23 828 56 151 2.0 1988 1.7.1988 49 180 112 725 25 350 55 740 1.9 1989 1.1.1989 55 000 121 387 27 483 58 187 2.0 1989 16.11.1989 55 000 112 591 28 156 55 291 2.0 1990 1.7.1990 58 300 115 375 29 339 55 698 2.0 1991 1.1.1991 61 798 118 359 30 533 56 098 2.0 1991 1.7.1991 64 768 124 047 30 001 55 121 2.2 1991 15.8.1991 66 387 126 505 30 001 54 842 2.2 1992 17.12.1992 67 715 127 318 31 258 56 379 2.2 1993 11.3.1993 68 663 128 035 31 868 57 005 2.2 1994 1.1.1994 68 663 126 780 32 619 57 776 2.1 1994 10.3.1994 69 693 128 054 32 619 57 494 2.1 1994 15.12.1994 74 460 133 981 33 620 58 032 2.2 1995 12.1.1995 75 949 136 660 33 990 58 671 2.2 1995 6.4.1995 77 438 137 155 34 115 57 964 2.3 1995 13.7.1995 78 987 137 953 34 240 57 367 2.3 1996 7.3.1996 80 251 136 984 34 949 57 228 2.3 1996 17.10.1996 81 856 138 262 35 507 57 534 2.3 1999 7.12.1999 85 500 139 819 38 657 60 642 2.2 2000 1.7.2000 92 000 148 091 39 522 61 028 2.3 2001 1.7.2001 95 600 145 004 41 034 59 706 2.3 2002 1.7.2002 98 800 145 749 42 963 60 799 2.3 2003 1.7.2003 102 760 147 734 45 310 62 488 2.3 2004 1.7.2004 106 770 149 690 46 248 62 200 2.3 2005 1.7.2005 111 150 152 058 48 907 64 183 2.3 2006 1.7.2006 118 950 156 477 51 045 64 415 2.3 2007 1.7.2007 127 060 163 715 53 861 66 573 2.4 2008 1.7.2008 127 060 156 744 55 738 65 960 2.3 2009 1.10.2009 131 040 159 392 60 623 70 738 2.2 2010 1.8.2010 136 040 160 465 61 702 69 818 2.2 2011 1.7.2011 140 910 160 512 64 471 70 450 2.2 2012 15.3.2012 185 000 209 259 66 995 72 695 2.8 2012 1.7.2012 190 550 214 464 67 000 72 339 2.8 2013 1.7.2013 195 130 214 491 70 754 74 608 2.8 2014 1.7.2014 195 130 208 212 71 171 72 851 2.7 2016 1.1.2016 199 040 207 486 71 693 71 693 2.8 2017 1.7.2017 203 030 207 248 73 882 75 417 2.7 2018 1.7.2018 207 100 207 100 74 456 74 456 2.8 Average annual growth rate (c) 1968 to 2018 6.4 1.2 6.3 1.2 1968 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 2018 1.2 -0.7 1.0 0.0

(a) adjusted for inflation using Consumer Price Index (CPI) to June 2018 prices

(b) average weekly wages annualised

(c) wages growth to Nov 2017 and MPs allowance to July 2018

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, June 2018, cat. no. 6401.0 (Table 1).

Average weekly earnings, Australia, Nov 2017, cat. no. 6302.0 (Table 10C).

Real values calculated by the Parliamentary Library

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

Graph 1 provides data until July 2018, 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.

[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. For the previous entitlements framework see C Madden and D McKeown, Parliamentary remuneration and entitlements: 2016 update, Research paper series 2015–16, Parliamentary Library, 2016. For the current framework see C Madden and D McKeown, 2018 Parliamentary remuneration and business resources: a quick guide, Research paper series 2018–19, Parliamentary Library, 2018. All hyperlinks correct as at 4 September 2018.

[2]. Parliamentary Business Resources Act 2017.

[3]. Parliamentary Business Resources Act 2017, section 45.

[4]. Remuneration Tribunal, 1982 Review, The Tribunal, Canberra, 1982, pp. 18–21 and Report 1999/01, The Tribunal, 1999, pp. 1–5.

[5]. S Griffith, Official Report of the National Australasian Convention Debates, Sydney, 2 April 1891, p. 654.

[6]. Official Report of the National Australasian Convention Debates, First Session, Adelaide, 22nd March to 23rd April 1897, pp. 1032–34.

[7]. Commonwealth Salaries Act 1907, Act no 7 of 1907.

[8]. E Page, House of Representatives, Debates, 4 June 1947, p. 3355. An Electorate Expense Allowance, not subject to income taxation, was paid from 1952.

[9]. 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.

[10]. Mr Justice Kerr, ibid., p. 12.

[11]. Ibid., p. 16.

[12]. 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, 72, 1984, Parliamentary Library, Canberra, p. 2.

[13]. Remuneration and Allowances Act 1979.

[14]. Remuneration Tribunal, 1987 Review, pp. 5–12.

[15]. Cullen Egan Dell, Report on the pay and allowances for members of parliament: prepared for the Remuneration Tribunal, 1988, pp. 18–19.

[16]. The PEO classification structure provides a framework for the negotiation of the terms and conditions of PEO employment.

[17]. Remuneration Tribunal, Explanatory Memorandum: Determination 2004/15 – Principal Executive Office (PEO) Classification Structure Terms and Conditions. WPI 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.

[18]. Australian National Audit Office (ANAO), Administration of parliamentarians’ entitlements by the Department of Finance and Deregulation, ANAO, 2009.

[19]. Report of the Committee for the Review of Parliamentary Entitlements (the Belcher review), April 2010, p. 12.

[20]. Remuneration Tribunal, Review of the Remuneration of Members of Parliament: Initial report, 15 December 2011.

[21]. Remuneration Tribunal, Reports, Members of Parliament, Secretaries of Departments, Specified Statutory Offices, Statement, 15 December 2011.

[22]. Remuneration Tribunal, Determination 2012/02: Members of Parliament—Base salary and related matters, 12 March 2012.

[23]. Remuneration Tribunal, Determination 2012/15: Members of Parliament—Base salary, entitlements and related matters, 19 June 2012.

[24]. Remuneration Tribunal, Determination 2013/13: Members of Parliament – Base salary, additional salary for Parliamentary office holders and related matters, 18 June 2013, accessed 13 August 2018; Remuneration Tribunal, Determination 2013/13 Members of Parliament – Salary statement of reasons, June 2013.

[25]. Remuneration Tribunal, 2014 Review of Remuneration for Holders of Public Office, Statement, 12 May 2014.

[26]. Remuneration Tribunal, Determination 2014/10: Members of Parliament—Base salary, additional salary for parliamentary office holders, and related matters, 14 May 2014.

[27]. Remuneration Tribunal, 2015 Review of Remuneration for Holders of Public Office, Statement, 31 March 2015; Remuneration Tribunal, Determination 2015/06 Members of Parliament – Base Salary, Additional Salary for Parliamentary Office Holders, and Related Matters, Reasons for Determination, The Tribunal, 11 May 2015.

[28]. Remuneration Tribunal, Determination 2015/22, Members of Parliament–Base salary, additional salary of parliamentary office holders and related matters, The Tribunal, 9 December 2015.

[29]. Remuneration Tribunal, 2017 Review of remuneration for the holders of public office, Statement, The Tribunal, 22 June 2017.

[30]. Remuneration Tribunal, Determination 2017/23 Members of Parliament, as at 1 July 2018, incorporating amending Determination 2018/06 Members of Parliament, 25 June 2018.

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