M.P.s ‘will pay’ for tax cuts

Press, 10 September 1985, Page 1

M.P.s ‘will pay’ for tax cuts

By

PATRICIA HERBERT

in Wellington

The politicians will pay for the income tax cuts they get on October 1 next year—with a drop in salary. The Prime Minister, Mr Lange, said yesterday the Government would ask for a downwards revision when the taxation reform package was introduced.

It will put more money into the pockets of the well paid by reducing the marginal tax rate from 66c in the dollar to 48c. Mr Lange estimates that this will accommodate a 10 per cent pay cut.

He made the announcement when commenting on the Higher Salaries Commission 1985 general review. It accords Parliamentarians an average increase in basic salary of about 38 per cent, back-dated to April 1 this year. Mr Lange himself has been given a whopping 37 per cent rise, from $85,743 gross a year to $117,500. When the allowances he is paid—both as Prime Minister and as Minister of Foreign Affairs—are added, his income rises to $142,000 a year, or $2730 a week gross, against $2014 at January 10. This means he is owed

more than $9OOO back-pay over the 13-week neriod.

Ha said yesterday that his job was worth all of $117,500 and more but was clearly embarrassed by the size of the increase he had been given.

The Deputy Prime Minister, Mr Palmer, has also been given a handsome rise. His base salary has been increased from $66,492 a year before tax to $92,000— or from $1287 gross a week to $1769.

The increase in percentile terms is even larger than Mr Lange’s at 37.4 per cent, but it is not as large as that given to the rest of the Cabinet or the Leader of the Opposition, Mr McLay. They have received a 38 per cent increase—from $59,419 a year to $82,000. The commission, chaired by Mr Richard Simpson and comprising Messrs William Birnie and Jim Francis, is an independent body which acts free from Government direction. Its brief is to fix the salaries paid to the nation’s top public servants, local authority personnel, university staff, medical officers 1 in the health service, and members of Parliament.

Usually it does this every three years but it took an extra year this time to sort out the complexities the

wage freeze had created.

Its decisions are binding, a point Mr Lange made yesterday when he was asked if he would accept the increase he had been awarded. He said he had little choice. Even if he did not pick up the extra salary he would be required to pay tax on it. The only alternative was to introduce retrospective legislation but this would subvert the commission’s independence, he said. The average level of increase across the board is reckoned at more than 30 per cent although no firm figure was available. Mr Simpson said no attempt had been made in the assessment to produce a wage path and salaries were decided on a case-by-case basis. The commission acknowledged in its report that the increases it had given were “significant” but said that to give less would be a failure of justice. This was because the last formal review had been in April 1981, four years ago. Between then and now the 8000 people under its jurisdiction had received an average pay increase of about 23.5 per cent. This had been achieved through two cost-of-living orders—s per cent in 1981

and $8 a week last year, and through two State Services adjustments, one for 9.2 per cent and the other for 7 per cent.

The evidence showed that the public sector had felt the effects of the freeze more keenly than the private sector and that a large rise was now needed to restore some kind of relativity, the commission said.

Behind the increases it had awarded was a “substantial movement” in the deals offered senior management in the corporate hierarchy over the four-year period. These often took the form of “perks.”

The commission had surveyed 250 positions in 125 companies across the broad spectrum of commercial activity, the report said, and had found that to assess the pre-tax value of the remuneration packages was no easy matter as the incidence of non-salary benefits had increased markedly. This was in part a response to high tax rates and in part to the various

forms of wage controls successive Governments had imposed. The State had to remain competitive if it was to attract and keep chief executives of the calibre needed, the commission said. As an example, it quoted the problems the Treasury has with staffing. A need existed to retain “ambitious high-per-formers,” it said. The taxpayer- would not be well served by “time-serving mediocrity.” As if anticipating the backlash its rulings would provoke, it said it had devoted considerable thought and indeed some worry to its task. Permanent heads scored an average of 36.4 per cent but the promotion system was made more flexible to encourage pay for performers. The figures for the other occupational groups are less meaningful as they relate back to 1981 and do not include the 23.5 per cent movement achieved since then. On this basis, academic

staff at universities got increases in the 40 to 50 per cent range. Their salaries rose at the bottom end from $14,062 to $20,000 and, at the top end, from $45,771 to $77,500. Detailed scales have yet to be drawn up for health medical officers but the highest salary has been raised from $51,900 to $87,500, or 68.5 per cent. Decisions about the Judiciary were also postponed pending the outcome of the Higher Salaries and Allowances Bill now before Parliament. Mr Lange said the increases which had been given were politically unpalatable but he acknowledged the need to keep public sector pay rates up with the market. For this reason, he said, the revision he would ask for next year would be confined to the politicians. He indicated, however, that he would prefer reviews in future to be done on a yearly basis rather than “as a dollop all at once.’’ Further reports, page 3