Part 4: How well do the three systems fit together?

How the Department of Internal Affairs manages spending that could give personal benefit to Ministers.

As outlined in Part 1, there are three related systems that provide remuneration and support to Ministers and MPs:

  • The Remuneration Authority sets salaries and an allowance for all MPs. The allowance is designed to cover a range of miscellaneous business expenses.
  • The Parliamentary Service, under the authority of an official direction from the Speaker, administers a range of entitlements and support services for all MPs, including some aspects of support provided to Ministers in their parliamentary capacity (for example, the costs of constituency offices).
  • The Department, through Ministerial Services, administers some of the parliamentary entitlements for Ministers, and also provides Ministers with a range of additional or alternative support, including the entitlements and support services provided for in an official direction from the responsible Minister.

In this Part, we assess how well the Ministerial Services system fits with the other two systems that provide remuneration and support to Ministers in their other capacities. We discuss:

  • our previous relevant findings;
  • the work we carried out for our inquiry;
  • the relationship between the Ministerial Services and the Remuneration Authority systems;
  • the relationship between the Ministerial Services and the Parliamentary Service systems; and
  • our overall assessment of the fit between the systems.

We have taken account of the fact that two other reviews have been taking place at the same time, which were both looking at aspects of these overall support arrangements. The Report of the Fourth Triennial Parliamentary Appropriations Review commented on some aspects of the current approach, including recommendations to simplify and remove some of the overlap between personal remuneration and business expenses. The Law Commission's review of the Civil List Act 1979 has also been looking directly, at a policy level, at the advantages and disadvantages of the current approach.

We have not duplicated their work. Our focus in this inquiry has been at the practical level, identifying where we see potential for unhelpful complexity or confusion for those working in the system.

Our previous findings

Figure 2 (following paragraph 1.16) summarised our previous reports on the parliamentary and ministerial funding systems, going back to 2001. The last two of those reports, in October 2009 and March 2010, identified some current problems with the relationship between the three systems.

When we examined the way in which accommodation assistance was provided to Ministers and MPs we said that the parliamentary and ministerial systems did not fit well together. The two sets of rules took quite different approaches for historical reasons and those differences made moving between the two systems complicated for both the individual MP and the administering agencies.

We found a similar issue when we examined the spending by one Ministerial office during this inquiry. There appears to be a clear overlap between the personal expense allowance given by the Remuneration Authority and the matters that the Department provides under the Executive Determination, under the heading of "operational resources". Each agency produces a list as guidance – the Remuneration Authority on what the allowance is designed to cover and the Department on what can be paid for as operational resources. Both lists include:

  • entertaining visitors, staff, and officials;
  • memberships, sponsorship, and fees;
  • koha;
  • gifts;
  • flowers (including wreaths);
  • passport photographs; and
  • briefcases and luggage.

The only way to reconcile the two lists is to infer that the allowance is for expenses that relate to parliamentary business while only ministerial expenses can be claimed as operational resources.

Our work in this inquiry

We reviewed the various legal documents that set out entitlements and support services in each system, as well as any associated background or explanatory material, to identify potential overlap or confusion. We also specifically asked about the practical interface between the systems in our interviews. As a result, we identified some problems with the way the systems fit together.

We discuss these problems in two groups, according to where they arise:

  • the relationship between the Ministerial Services and the Remuneration Authority systems; and
  • the relationship between the Ministerial Services and the Parliamentary Service systems.

Relationship between the Ministerial Services and Remuneration Authority systems

Transparency about the amount of personal benefit

The main issue with the relationship between the Ministerial Services system and the Remuneration Authority system is the blurring of the line between remuneration and business expenses. This issue primarily arises because of the comprehensive approach taken to travel entitlements in the Parliamentary Determination, some of which have traditionally had the potential for significant personal benefit. Ministerial Services meets the cost of some of these parliamentary entitlements for Ministers. Some of the additional entitlements in the Executive Determination also give some personal benefit (such as a self-drive car, and unlimited access to chauffeur-driven cars and taxis).

The merits of this approach to providing remuneration and meeting business expenses have been extensively discussed elsewhere, including by this Office in earlier reports.7 Therefore, we comment only on the issue of transparency.

In most workplaces, if a business expense or benefit provided to an employee has an element of personal benefit, that benefit is declared to the Inland Revenue Department (Inland Revenue) and quantified, and the employer pays fringe benefit tax on it. In addition, many workplaces operate a "total remuneration" system, where an employee can choose to take some of the value of their remuneration through other benefits, such as a car.

It is clear from the entitlements in the Parliamentary and Executive Determinations that MPs and Ministers are likely to get some personal benefit from them. The Civil List Act 1979 requires both the Speaker and the Responsible Minister to consult the Commissioner of Inland Revenue before making new Determinations, which enables the entitlements to be assessed for fringe benefit tax purposes.

There is no formal requirement to consult the Remuneration Authority in the same way, but we understand that this happens in practice. The Remuneration Authority takes account of some of the entitlements (mainly personal travel entitlements) in the Parliamentary Determination when it sets salaries. The main entitlement that it has regarded as providing a significant personal benefit has been the entitlement to a rebate on international air travel for MPs and their partners. In November 2010, the Speaker decided that this entitlement will be abolished in its current form.

Information on the adjustments that the Remuneration Authority makes is not publicised in the same way as the total remuneration. We have found only one published explanation of these adjustments, in a 2003 determination of the Remuneration Authority. It explained the value that had been put on the various entitlements, and used the example of a backbench MP to show that a gross remuneration of $146,000 reduced to a salary of $110,000 once the adjustments were made.

Therefore, the level of personal benefit arising from the parliamentary and executive entitlements is not as great as it appears. But between them the systems are not very transparent. The information that is publicly available tells only part of the story.

In our view, if these current arrangements that blur remuneration and business expenses continue, then the administering agencies need to make more information public on how they manage the apparent duplication of benefit. For Ministerial Services, this might simply involve making public the results of Inland Revenue's assessment of fringe benefit tax. For the Remuneration Authority, it would require more regular public disclosure of the extent to which the salary has been adjusted to take account of the personal benefit received through the other systems.

Overlapping allowance entitlements

Our other main concern with the relationship between the Ministerial Services and Remuneration Authority systems is the practical one discussed in paragraph 4.7, about the explicit overlap between the Remuneration Authority allowance and the expenses covered under operational resources in the Ministerial Services system. The only way to reconcile the two lists is to infer that the allowance is for expenses that relate to parliamentary business and that only ministerial expenses can be claimed as operational resources. Although this may be a meaningful distinction in some contexts (such as laying a wreath), it makes less sense in other contexts (such as purchasing luggage or passport photographs).

Ministerial Services told us that some of these types of spending are intended to relate to staff rather than Ministers. If that is the case, then that guidance should be in the Handbook rather than the Executive Determination. The Determination applies only to Ministers, not staff. Ministerial Services also told us that it expects Ministers and staff to be familiar with the distinction between ministerial and parliamentary business.

We consider it unhelpful for the Executive Determination to contain rules or guidance that appear to create a direct overlap with the allowance that Ministers receive as part of their remuneration.

In our view, the Department needs to consult the Remuneration Authority and clarify the Executive Determination and associated guidance to ensure that there is no overlap between the two, and that Ministers and their staff have clear guidance on what can and cannot be claimed as operational resources.

Relationship between the Ministerial Services and Parliamentary Service systems

The Ministerial Services and Parliamentary Service systems deal with a bigger range of practical matters, and are more closely intertwined. The Parliamentary Determination provides the base of the two systems because the parliamentary entitlements apply to all MPs, including Ministers. The Parliamentary Service administers most of these entitlements, but Ministerial Services administers and pays for some of them for Ministers. The Executive Determination creates other entitlements for Ministers that are either additional to or replace the parliamentary entitlements.

In total, Ministers receive:

  • their salary and an expense allowance determined by the Remuneration Authority (which are administered and paid through Ministerial Services);
  • Parliamentary entitlements, which are administered and paid by the Parliamentary Service;
  • Parliamentary entitlements, which are administered and paid by Ministerial Services; and
  • Ministerial entitlements, which are administered and paid by Ministerial Services.

We identified several matters that we consider need attention.

The Executive Determination contains a specific section on the relationship between the entitlements under it and the equivalent Parliamentary Determination. It states:

(1) Members of the Executive are also members of Parliament and, as such, have all the entitlements to travel, accommodation, attendance, and communications services that the Speaker determines, under section 20A of the Civil List Act 1979, to be available to members of Parliament and their families …

(2) For the avoidance of doubt, the entitlements of members of the Executive set out in this document are either additional or alternative to the entitlements referred to in subclause (1), the applicable principle being that a member of the Executive is not entitled to receive duplicate entitlements.

In our view, this is not a particularly helpful explanation for Ministers and their staff. In practice, it is necessary to work through the different types of spending and work out in some detail what entitlements are covered by each set of rules and each Vote. Appendix 3 summarises our analysis of the categories of expenditure that we have examined. We consider it an overly complicated picture. For example:

  • For a domestic trip where the Minister will be accompanied by their spouse, the ministerial system covers the Minister's air travel and the parliamentary system covers the spouse's air travel. The ministerial system will cover accommodation and meal costs, and will also cover the spouse's accommodation and meal costs if it is "necessary" for the spouse to attend an official function with the Minister.
  • To meet a routine business expense, such as entertaining visitors, the Minister has to decide between the personal expense allowance provided for incidental business costs of being an MP, the parliamentary funding of operational expenses as an MP (for example, electorate costs), and the operational resources available to Ministers.

Although these various distinctions may be logical in theory, we consider that they do not make it easy for the users of the systems. The complexity increases the risk of error by Ministers and senior private secretaries.

These distinctions, and the split between different appropriations and budgets, also impede transparency. In particular, the information that is publicly released on travel costs splits the information so that the travel costs of Ministers are reported under Vote Ministerial Services and the travel costs of their spouses and families – even if they are accompanying the Minister – are recorded under Vote Parliamentary Service. It is not readily apparent to readers that the costs may relate to the same trip and to ministerial business.

Another practical problem that has arisen in the past is that the strict demarcation between the parliamentary and ministerial support systems does not always fit the reality of political relationships and practical needs. Our 2006 report on the funding for liaison staff working in Green Party parliamentary offices, when two Green Party MPs were carrying out some Executive activities, is one illustration of this type of problem. Another is that senior private secretaries are sometimes managing both a ministerial budget and a parliamentary budget for their Minister. We were told that in practice this situation is managed by the Parliamentary Service "co-employing" them, so that the person can hold a financial delegation as an employee of the Parliamentary Service. This solution may work in practice, but it is administratively cumbersome.

There are a range of other practical matters where there is scope to improve the service to the users of the systems by better integrating the ministerial and parliamentary systems:

  • The Appropriations Review Committee has commented on the work being done to integrate a range of practical services, including cell phones and other information and communications technology services.
  • In our 2009 report on parliamentary and ministerial accommodation entitlements, we highlighted problems with the lack of connection between the two systems of accommodation entitlements. Those problems are now being addressed with the implementation of the new process of a simple payment to reimburse Ministers for their accommodation costs.

Our overall assessment of the fit between the systems

This first part of our analysis examined the overall support arrangements and asked how well the three systems fit together. Leaving to one side the larger policy questions about whether the overall support arrangements are appropriate, our assessment is that the practical overlap and the complexity built into the current arrangements is unhelpful, and is likely to make it harder for people to ensure that spending is reasonable and appropriate.

Officials from the Parliamentary Service and Ministerial Services have told us that those working in the system become familiar with it. Because almost all Ministers start off as MPs, they will usually have a reasonable understanding of the parliamentary entitlements and remuneration system before they become a Minister, including the scope of parliamentary business and the use of the allowance. We can see that officials from the two agencies can and do make it work in practice, and that they consult regularly with one another.

However, the current arrangements are far from ideal. They impede transparency and create an unhelpful degree of complexity. In our view, it would be better to clarify and simplify how the three systems fit together so that the overall support arrangements are more coherent.

This could extend to wholesale reform of the overall support arrangements, as has been proposed by others. Such a reform would not be a task for Ministerial Services alone, but would require broader input from the relevant administering and policy agencies.

Even if change does not extend to reform of the overall support arrangements, there would still be benefit in working to simplify and clarify some of the boundaries between the three systems. More modest changes to address the various issues that we have identified in this Part could be made by the administering agencies in the course of the regular review and updating processes for each of the Determinations.

7: New Zealand Parliament (2010), Report of the Fourth Triennial Parliamentary Appropriations Review; Office of the Auditor-General (2001), Parliamentary Salaries, Allowances and Other Entitlements: Final Report; and Prebble, M (2010), With Respect: Parliamentarians, officials, and judges too, Institute of Policy Studies, Wellington.

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