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Review of Parliamentary Entitlements Committee Report April 2010

Chapter 5 - Remuneration

The issue of parliamentary remuneration regularly generates critical public discussion and media comment.  Devising an effective method of recompensing parliamentarians for performing their varied roles and responsibilities is complex, not least because community attitudes and political implications are often seen as relevant factors.  Assessing the proper salary level for senators and members in relation to the rest of the community is not simple; nor is determining the nature and level of support to be met from public funding rather than by the senator or member, or the relevant political party.  The committee is strongly of the view that the role of salary setting is one for the independent Remuneration Tribunal.

In considering the nature of remuneration, the committee formed the view that the electorate allowance perhaps best epitomises a level of uncertainty and ambiguity in the current remuneration framework.  The Remuneration Tribunal has submitted that the purpose of the electorate allowance has changed over the years and other uncapped entitlements that provide direct assistance to parliamentarians have developed alongside the allowance, without a corresponding reduction in its value.58 The Remuneration Tribunal rightly considers that the time has come when, for the sake of transparency and public confidence, the nature of the electorate allowance should be changed.59

The committee considered that its recommendations on parliamentary remuneration should be treated as a package and that all salary matters should be independently determined by the Remuneration Tribunal following a work value assessment.  The government should ask the Tribunal to conduct a work value assessment and, in the absence of such an assessment, the government should assess a possible need for compensation to offset reduced entitlements.

Work value

The Remuneration Tribunal’s submission to the committee proposed setting basic salary as a figure in its own right, rather than by reference to another group – currently the Principal Executive Office (PEO) classification structure.  The committee supports that proposal.  The link to the PEO classification structure, introduced in 1999, has not been successful at any level.  There is no direct relationship between the activities and responsibilities of parliamentarians and those of principal executives.  Nor has the link delivered transparency for those wishing to know the level of parliamentary remuneration.  As observed in the joint whips’ submission, the link has also not avoided the encroachment of the political process on the final determination of parliamentary remuneration.

The committee considered that the Remuneration Tribunal should undertake a work value assessment and determine a new total salary amount.  As part of that assessment, the Tribunal should also examine relativities in the additional salaries of ministers and parliamentary office holders currently set as a percentage of basic salary.  Changes in the significance and responsibilities of key parliamentary offices should be taken into account when doing this.

The committee supported the view of the Remuneration Tribunal and the two chief whips that there is a strong case for setting additional remuneration for shadow ministers.  These parliamentarians have no additional remuneration yet greater responsibilities than opposition backbenchers and well-defined and recognised parliamentary functions.

Personal benefit

The committee considered that the level of parliamentary remuneration would be more transparent if entitlements providing personal benefit were considered part of salary. The committee regarded the electorate allowance and the entitlement to overseas study travel (refer to Chapter 7) to be of this nature. Therefore, the base rate of electorate allowance and an amount in lieu of overseas study travel should become part of the salary package.

The electorate allowance of $32,000 per annum is currently paid by way of monthly instalments at the same time as the base salary, but is not subject to income tax at the time of payment. For income tax purposes, full accounting is required for actual expenditure, and any part of the allowance not accounted for gives rise to an income tax liability. While the Australian Taxation Office provides examples of the types of expenses that can be covered by the electorate allowance, expenditure by senators and members is likely to be variable both in nature and amount. Such expenditure could include attendance at functions in the electorate, wages for additional staff performing electorate duties, additional fares, accommodation, meals and transport associated with travel60.

The recommendation to fold the electorate allowance or any other entitlement into salary does not constitute a recommended pay rise. These measures are designed to simplify the salary structure and make it more transparent. The amounts folded in would be taxed upfront as part of normal monthly salary. The Remuneration Tribunal would need to consider the impact of including the electorate allowance and any other entitlements as part of the all-up salary amount. As part of that consideration the Remuneration Tribunal would also need to consider the implications for the additional salaries of ministers and other parliamentary office holders, which are set by way of a percentage of the backbench salary. The Remuneration Tribunal should consider suitable arrangements in lieu of the higher levels of electorate allowance payable only to members from the largest electorates.

The committee considered that legislative or regulatory measures should be taken by the government to prevent the redetermination of entitlements that have been folded into salary unless there has been an offsetting reduction in salary.

Recommendation 6

That the government:

  1. ask the Remuneration Tribunal to:
    • conduct a work value assessment for federal parliamentary remuneration, re examine the relativities of the additional salaries paid to ministers and parliamentary office holders and determine an appropriate level of additional salary for shadow ministers
    • incorporate the base rate of electorate allowance into federal parliamentary salary, and
    • develop suitable arrangements in place of the higher levels of electorate allowance for members of the House of Representatives from the largest electorates.
  2. take legislative or regulatory measures to prevent future redetermination of entitlements that have been folded into salary unless offset by an appropriate reduction in salary.

Consequential effects

Parliamentary superannuation

The committee did not consider that it was within its terms of reference to undertake a detailed review of the parliamentary superannuation schemes.  The committee did, however, consider the consequential implications of its remuneration recommendations on the superannuation benefits applicable to senators and members.

Under the parliamentary superannuation scheme (the PSS) established by the Parliamentary Superannuation Act 2004 the Commonwealth must make contributions of 15.4% of parliamentary salary into a complying superannuation fund of the senator’s or member’s choice.  The electorate allowance is currently excluded for the purpose of determining the salary against which the Commonwealth’s contributions are made.  The committee considered that the PSS provides benefits broadly in line with the community standards under the Superannuation Guarantee.  Under the Superannuation Guarantee the level of earnings used to determine an employer’s superannuation contribution includes allowances in the nature of salary.  Therefore, the committee considered the electorate allowance, once folded into salary, should be treated as salary for superannuation purposes for members of the PSS.

The committee also noted the financial disadvantage that members of the PSS have if they leave the parliament prematurely.  Aspects of remuneration that are generally available in the community upon cessation of employment, such as long service leave and accumulated recreation leave, are not entitlements that are available to parliamentarians.  In addition, members of the PSS do not have a pension immediately available to them on leaving parliament if they have not reached the age of 55.

Senators and members who joined the parliament prior to the 2004 election are covered by the parliamentary contributory superannuation scheme (the PCSS) established by the Parliamentary Contributory Superannuation Act 1948.  That scheme is closed to new members.  Under the PCSS members make contributions of 11.5% from their after tax income.  Electorate and other allowances such as travel allowances are excluded from superannuation member contributions and the committee considers they should remain so.

However, without preventative measures, the folding of any entitlements into salary would have the potential to increase the retirement benefits provided under the PCSS.  The decision to close down the PCSS and establish new superannuation arrangements for incoming senators and members from the 2004 federal election was related to a perception that the PCSS was too generous.

Both sitting and non-sitting members of the PCSS would be advantaged over members of the PSS if a decision to fold the electorate allowance, or any other amounts in lieu of forgone entitlements, were to raise the level of parliamentary salary.  Unlike the pensions provided under defined benefits superannuation funds for Australian Public Service employees and military personnel, the PCSS uses the up-to-date salaries of federal parliamentarians to establish the pension levels paid to beneficiaries.  Therefore, every time the level of parliamentary salary increases, the pension levels paid to former parliamentarians under the PCSS also increase.

The committee considered, therefore, that the payments in lieu of electorate allowance and overseas study travel should not form part of the salary used to determine the superannuation benefits of members of the PCSS, and that the government should take the necessary legislative or regulatory action to prevent that result.

Recommendation 7

That the government take preventative measures so that the folding in of electorate allowance does not flow to the retirement benefits of members of the parliamentary contributory superannuation scheme established under the Parliamentary Contributory Superannuation Act 1948.

State and territory parliamentary salaries

As shown in Table 5-1 below, most Australian states and one of the territories directly link the salaries of their parliamentarians to those of federal parliamentarians.  Only Western Australia and the Australian Capital Territory (ACT) conduct independent reviews.  There is potential for double dipping given that state and territory parliamentary remuneration packages also include electorate-type allowances and may provide overseas study travel entitlements of a similar nature to the Commonwealth.  The committee considers that the government should provide early advice to premiers and chief ministers regarding the potential for flow-on.

Table 5-1 Parliamentary salaries


Jurisdiction

Base Salary
($ per annum)
1 Oct 2009

Salary Nexus

Variance

Authority

Commonwealth

131,040

 

Remuneration Allowances Act 1990

New South Wales

130,540

$500 less

Parliamentary Remuneration Act 1989

Queensland

130,540

$500 less

Parliament of Queensland Act 2001

South Australia

129,040

$2,000 less

Parliamentary Remuneration Act 1990

Tasmania

108,242

85.19%

Parliamentary Salaries, Superannuation and Allowances Act 1973

Victoria

124,360

$5733 less

Parliamentary Salaries and Superannuation Act 1968

Western Australia

128,980

Determined by WA Salaries and Allowances Tribunal

Salaries and Allowances Act 1975

Northern Territory

128,040

$3,000 less

Assembly Members and Statutory Officers Remuneration and Other Entitlements Act 2006

Australian Capital Territory

114,354

Determined by ACT Remuneration Tribunal

Remuneration Tribunal Act 1995


Recommendation 8

That the government provide early advice to premiers and chief ministers of any potential for flow-on effects to state and territory parliamentary salaries.

Resettlement

The current resettlement provisions provide for payment of 12 weeks’ salary to those senators and members:

The submission to the committee from the chief whips of the major political parties proposed a severance payment linked to community standards and suggested one month’s salary per year of service; and an additional two months’ salary in lieu of leave accrual for those who entered parliament at or after November 2004.

In the committee’s examination of benefits provided in other jurisdictions it noted that in the United Kingdom the Kelly Committee considered that... “it is appropriate that redundancy pay be available to MPs who lose their seat through defeat in an election, through a boundary change or as the result of de-selection – just as redundancy pay is available to many others who lose their jobs involuntarily”. 61

The committee supported a more generous resettlement allowance for those senators and members who entered parliament at or since the 2004 election and who will have to re-establish themselves in employment following a loss of pre-selection or election.  Unlike many others in the Australian workforce parliamentarians do not accrue recreation and long service leave.  Therefore they are unable to accumulate a leave ‘bank’ to convert to cash and then draw on to enable them to meet expenses on leaving parliament.

The committee did not support an increase in the current resettlement allowance for those who entered parliament at the 2001 election, as the superannuation entitlements of that group are well in excess of community standards.  Access to a defined benefits superannuation scheme provides this group with the capacity to make transitional financial arrangements, should such arrangements be required, to cover the period between their retirement age and their eligibility for retirement benefits at 55 years of age.

The committee recommends, in addition to the base 12 weeks’ resettlement allowance, an amount of up to six months’ salary (based on years of service in parliament) for those senators and members who joined the parliament at or since the November 2004 election, who have retired involuntarily and served three years or more in the federal parliament.

The committee noted that resettlement payments for parliamentarians are treated as ordinary salary for taxation purposes, whereas the community standard for redundancy payments is for tax free treatment up to prescribed limits.  The recommended amount is broadly equivalent to the compensation for the early loss of office for senior Commonwealth officials and is comparable to provisions in some overseas jurisdictions.

It is not uncommon for an employer to offer assistance for retraining to employees who are facing a change in their employment circumstances, for example, losing their jobs.  The committee considered it would be reasonable to make a separate provision for former parliamentarians to prepare for a post-parliamentary career and for this payment to be available to all those who entered parliament at or since the 2001 election, i.e. those who do not automatically have access to their superannuation on leaving parliament.  The committee therefore recommends that a career transition payment of up to $5,000 be available on a reimbursement basis supported by receipts.  This payment would cover services provided by a recognised firm or organisation to be used for financial advice, re-employment counselling or towards the cost of education or re-training.

The submission of the chief whips proposed that former parliamentarians should have limited continuing access to the Parliament House computing network.  The committee did not support this proposal and noted that it is standard practice for such access to cease simultaneously with the cessation of employment.

Recommendation 9

That the government ask the Remuneration Tribunal to determine:

  1. an additional allowance of one month’s salary per year of service in the parliament (up to a maximum of six months’ salary) to be provided to senators and members who joined the parliament at or since the November 2004 election, who have:
    • retired involuntarily, and
    • are not able to access a pension or superannuation benefit (related to their service in the parliament) immediately upon ceasing to be a member of parliament, and
    • have served three years or more in the federal parliament.
  2. a career transition allowance of up to $5,000, to be available on a reimbursement basis for those senators and members who:
    • have joined the parliament at or since the November 2001 election, and
    • are not able to access a pension or superannuation benefit (related to their service in the parliament) immediately upon ceasing to be a member of parliament, and
    • have retired involuntarily.

Insurance

The need for workers’ compensation insurance for senators and members was raised in submissions from the parliamentary chamber departments and the chief whips.  Under federal and state legislation, it is mandatory for employers to provide workers’ compensation insurance for their employees.  Employees under the Members of Parliament (Staff) Act 1984 are covered by workers’ compensation insurance, but senators and members are not because they are not regarded as employees of the Commonwealth.  It is therefore not possible for a Commonwealth agency to provide workers’ compensation insurance for them without express legislative authority.

Generally, individual workers cannot cover themselves for workers’ compensation, even if they are self-employed and have an ABN.  The only avenue for compensation for a senator or member who is exposed to harm while undertaking parliamentary, electorate or official business is to pursue it through legal avenues.

Given the diversity of roles that parliamentarians undertake, the varied environments in which they conduct their business, and the politicised and frequently polarised nature of their public involvement, lack of workers’ compensation coverage represents a considerable risk.  The committee considers that the absence of workers’ compensation insurance coverage for senators and members is out of step with modern community and public sector standards and should be addressed by the government.

In regard to public liability insurance, the committee noted that senators and members are not covered by public liability insurance for activities outside the electorate office and Parliament House, Canberra.  Commonwealth-funded electorate offices are covered by a general liability insurance policy.  This covers circumstances where it can be demonstrated that injury or damage occurred in connection with property controlled by the Commonwealth, and a legal liability to pay compensation has arisen.

From time to time senators and members may organise events outside the electorate office and engage volunteer workers who may not be covered by the policies covering the electorate office.  Currently, to cover these situations, parliamentarians need to seek their own independent legal advice on how to best manage their personal exposure to potential civil claims, taking into account their individual circumstances.  However, the committee did not consider the evidence in support of providing public liability insurance to be as compelling as that in support of providing workers’ compensation insurance.  The government may wish to consider the matter in the future.

Recommendation 10

That the government:

  1. establish a legislative basis to provide senators and members with workers’ compensation insurance at Commonwealth expense, and
  2. note the absence of public liability insurance coverage for senators and members at Commonwealth expense.

58. Submission to the review by the Commonwealth Remuneration Tribunal, p.42.

59. Ibid., p.14.

60. Remuneration Tribunal, 1997 Decisions and Reports, pp.14-15.

61. Committee on Standards in Public Life (2009), MPs’ expenses and allowances Supporting Parliament, safeguarding the taxpayer (Sir Christopher Kelly KCB, Chair), November 2009, United Kingdom, p.80.

 

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Last Modified: 23 March, 2011