Public sector pay rises a tax on private earners

When the Prime Minister announced an overhaul of the way that MPs’ pay would be calculated, after an embarrassing 5.4% pay rise form the Remuneration Authority, we at the Taxpayers’ Union were cautiously optimistic.

While it was reassuring to see politicians from across the political spectrum admit that the proposed pay rise was hard to swallow, the solution proposed by the Prime Minister creates some potentially perverse incentives.

The Council of Trade Unions, along with the Labour Party, more or less welcomed the changes proposed by the Prime Minister. The CTU’s chief economist, Bill Rosenberg, said that MPs’ salaries should not be indexed to the private sector.

That’s a sentiment we agree with. Too many of our aspiring politicians take a significant pay increase upon becoming an MP – a pay rise that is completely out of step with their earning potential in the private sector.

The Prime Ministers’ proposal for MPs’ pay would see increases indexed against the public sector. Every time our policy-makers increase the pay of taxpayer-funded public servants, they will in turn increase their own pay packets.

The real losers in this arrangement? Taxpayers.

On yesterday’s Firstline Labour leader, Andrew Little, answered a few questions about MPs’ pay and what approach his party would be taking.

We were staggered with the former trade-union man’s free and frank admission that public sector workers had been receiving more generous pay rises than those workers in the private sector.

Paying public sector workers more than those in the private sector does not get New Zealand ahead. It means those in the private sector pay more taxes and take home less. Does Mr Little not realise that or is he pandering to public sector unions?

Unless the Prime Minister ensures that public servant pay rises are reined in, he may find next year’s Remuneration Authority poses an even greater embarrassment.