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News

Do-it-yourself fix for MPs' pay quandary

02 March 2009

In a rare show of unanimity, MPs recently unanimously resolved to make a submission to the Remuneration Authority asking it not to increase their salaries in 2009 and to revisit the issue in 2010.

So what is the Remuneration Authority supposed to do this year, and next?

The Remuneration Authority determines salaries and allowances for a whole range. of central and local government office holders through a careful, statute governed process; not by bowing to every wind that blows past. 

Authority chairman David Oughton, no doubt choosing his words carefully, said that the authority would give the resolution due consideration.  What that should mean is that it gets as much consideration, no more and no less, as a submission from a member of the Tuatapere Community Board asking for an increase in his or her $1215 annual salary.  The Authority should do what it has to do according to the law. 

If it does not do so in 2009, then when it revisits in 2010 it will be faced with having to give politicians and judges a catch up for the missed 2009 increase, or further breach its statutory obligation. 

So what should happen?  The solution is simple.  Parliament should fix the almost correct charitable donation system introduced by Labour (actually by Peter Dunne who is still revenue minister). 

Any holder of an office covered by the Remuneration Authority should have the statutory right to decline to receive all or part of his or her income, and redirect it to charity.  That would be redirection in full; not with the Inland Revenue Department inaccurately clipping the ticket along the way as happens now. 

If Mr Key wants to give away $10,000 now, he can, and he gets a tax credit of 33.3 percent. 

The trouble is, even though he has not kept the money, he would still have to pay net tax on it of $570 or 5.7 percent; this being the difference between the 3.3 percent tax credit and his marginal tax rate of 39 percent. 

The Tuatapere Community Board member, who might be on a marginal tax rate of, say, 21 percent still gets a 33.3 percent tax credit and can offset the 12.3 percent difference against other tax liability. 

Surely we can do better than that. 

Why not let anyone subject to the Remuneration Authority give up as much income (2009 increase or otherwise) as they want, and treat them as if they never received it?  That way the Authority can do its job as it is supposed to, and individuals can make their own decisions. 

Come to think of it, why not make this simple system available to bonus-earning private sector chief executives, performance-paid senior state servants, and everybody else?  There is plenty of time for Parliament to act – the Remuneration authority will not even start on its task for MPs until it has the data up to June 30 this year. 

The views expressed here are those of David Cochrane and may or may not reflect those of the firm or its clients.

For more information, contact our Web Editorwebeditor@chapmantripp.com+64 9 357 9622

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