Part 2: The legal and financial system for parliamentary travel entitlements

Inquiry into the use of parliamentary travel entitlements by Mr and Mrs Wong.

Both the Civil List Act 1979 and the Parliamentary Service Act 2000 give the Speaker power to issue formal Directions which set various entitlements and services to be provided for MPs.

The domestic travel entitlement

For domestic travel, the Directions state that an MP’s travel costs will be met for any air travel on a scheduled service in New Zealand, irrespective of the purpose of the travel. The spouse or partner of an MP has the same general entitlement, but cannot use it if the travel is for private business purposes. This general entitlement for all MPs and their spouses has been in place for many years, and continues.

The international travel entitlement

The system is more complex for international travel. Until late 2010, MPs and their spouses were entitled to have a portion of an international airfare (referred to as a rebate) paid by the Parliamentary Service. The percentage of the entitlement increased according to the number of years that the person served as an MP. In simple terms, the entitlements were:

  • no rebate during the first term of Parliament (3 years);
  • 25% rebate after one term (3-5 years in office);
  • 50% rebate after two terms (6-8 years in office);
  • 75% rebate after three terms (9-11 years in office); and
  • 90% rebate after four terms (12 or more years in office).

The rebate was not available if the airfare was paid from other public funds or another source, or if the travel was for private business purposes.

Although there were minor adjustments to the rules over the years, this basic system had been in place for many years.

The Speaker abolished these international travel entitlements for private travel for MPs and their spouses in November 2010. They have been replaced by a more targeted entitlement to have some costs met for international travel relating to parliamentary business.

How the Remuneration Authority sets the salaries

In 2003, the Remuneration Authority set out its approach to setting parliamentary
salaries under the system established by legislative amendments in late 2002.3 In
summary, it established an appropriate total remuneration level for an ordinary
MP, using job evaluation data and comparative information. The Authority
regarded this as a gross figure, and deducted the value of personal benefits the

Part 2 The legal and financial system for parliamentary travel entitlements
MP would receive through the parliamentary expenses and support systems to
arrive at the amount of salary that should be paid. It valued the personal benefits
by using data on the previous year’s average use of the travel entitlements and
made a standard deduction for all members.

The relevant deductions that the Authority decided on in 2003 are set out in Figure 1.

Figure 1
Remuneration Authority deduction calculations for Members of Parliament in 2003

  Average cost for
an MP
IRD assessment
of personal
Amount of
deduction from
MP’s domestic air travel $30,296 5% $1,500
Spouse’s domestic air travel $7,516 45% $3,400
Private international air travel (current MPs and spouses) $5,780 100% $5,800
Total deduction     $10,700

Source: Parliamentary Salaries and Allowances Determination 2003.

The Remuneration Authority has applied similar principles each year since 2003. Although it has varied the exact approach over time and moved away from such a precise calculation, it still takes account of the travel entitlements as it sets a uniform salary for all MPs. This system does not enable it to take account of an individual MP’s personal circumstances or use of the entitlements.

The estimated personal value of the entitlements has varied each year, depending on calculations of average use the previous year. Figures provided to us by the Remuneration Authority showed fluctuation between about $8,000 and $15,000 between 2003 and 2010. One reason for departing from a precise calculation of an annual deduction has been to smooth the effect of changes and avoid sharp fluctuations in base pay.

After the Speaker abolished the international air travel entitlements in November 2010, the Remuneration Authority reviewed the salary it had set for MPs. In December 2010, it made an interim adjustment and increased the base salary by $2,000 for each MP. It also indicated that it might make further adjustments once the new international travel arrangements were established and as the economic situation changed. It has since decided to make no further change.

The net effect for Mrs Wong

To show the system’s practical effect, we attempted to calculate the personal benefit the Wongs received through these travel entitlements (using the IRD estimate of personal benefit), and compared it with the approximate personal value of travel entitlements that had been taken into account when setting an MP’s salary over the same period.

A five-year snapshot

The first calculation we did was for the financial years 2003/04 to 2007/08. This was the period between the Remuneration Authority’s system coming into force in November 2003 and Mrs Wong becoming a Minister in November 2008 (because Ministerial salaries are calculated differently). By this stage, Mrs Wong had already served two terms in Parliament and was entitled to a rebate of 50% then 75% on private international travel.

The comparison between what is allowed for at a general level in the salary-setting process and the value received by any individual MP in a particular period is unlikely to ever produce an exact match. Our calculation showed that, during these five financial years:

  • Mrs Wong received personal travel benefits worth about $70,000; and
  • when setting MPs’ salaries, the Remuneration Authority took account of estimated personal travel benefits worth about $60,000 for each MP.

Figure 2
Comparison of the personal value of travel entitlements as assessed by the Remuneration Authority and received by the Wongs

value of
Mrs Wong’s
travel (5% of
value of
Mr Wong’s
travel (45%
of cost)
value of
travel rebate
(100% of
rebate cost)
value of
personal value
of travel taken
in account by
2003/04 1,717 3,696 - 5,413 8,079
2004/05 1,616 4,374 2,529 8,519 9,252
2005/06 1,468 3,693 16,030 21,191 12,515
2006/07 1,706 3,279 24,852 29,837 14,958
2007/08 1,686 2,058 1,520 5,264 14,271
Total 8,193 17,100 44,931 70,224 59,075

Source: Information on the cost of travel by Mr and Mrs Wong is taken from the Parliamentary Service’s financial records. The Remuneration Authority provided the information on the estimated personal value considered when setting salaries.

The overall picture

We did not regard this calculation as giving a fair overall picture because it excluded Mrs Wong’s first two terms in Parliament, when she had received a much lower level of benefit from the international travel rebate system. We therefore did a second, broader calculation to produce an approximate figure for her 14 years as an MP. This is only an approximation, because it does not reflect that a different salary-setting system operated until 2003, or that the amount that the Remuneration Authority allows for varies each year.

We used the figures published in the 2003 Remuneration Authority determination, as an approximate mid-point in Mrs Wong’s time in Parliament. We applied the IRD estimates of personal value to all travel taken by Mr and Mrs Wong, and we applied the $10,700 deduction figure that the Authority used in 2003 to the whole 14 year period. The result was that between 1996 and 2011:

  • If the same system had been operating throughout the period, the salary-setting authority would have taken into account an estimated personal benefit of about $150,000.
  • Mrs Wong received personal travel benefits worth about $115,000 ($35,000 less than would have been estimated when setting her salary).

This context does not mean that compliance with the rules is any less important. We set out this context simply to acknowledge that, to the extent that this entitlements system is regarded as "a perk", it is one that the remuneration system broadly allows for when setting salaries.

However, the criticisms of the system that we and others have previously voiced remain, namely that it is insufficiently transparent and overly complex. It also operates unfairly in that there is a fl at adjustment to all salaries, irrespective of the individual’s use of the entitlements. High users of the personal and spousal travel entitlements obviously benefit, while low users, arguably, are penalised. MPs who serve only one term carry the costs but never receive any benefits. We acknowledge that the Speaker has now changed the international travel entitlements so that they are no longer available for private travel.

3: Parliamentary Salaries and Allowances Determination 2003.

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