BACKGROUND NOTE, Updated October 2011

The annual allowance for senators and members

Leanne Manthorpe; updated by Cathy Madden and Deirdre McKeown
Politics and Public Administration Section, and Guy Woods, Statistics and Mapping Section

Important note: The annual allowance for members of parliament has increased to $185 000 from 15 March 2012. This background note will be revised to reflect the increase shortly.

Introduction

Senators and members receive an annual allowance[1] by way of basic salary—$140 910 from 1 July 2011.[2] This background note explains the legislative basis, fixing and linking mechanisms for the allowance. Adjustments to the annual allowance since 1968 are provided in Table 1 and Graph 1.

Information on the annual allowance for state and territory members of parliament is available in a companion Background Note, Parliamentary allowances, salaries of office and entitlements.

Constitutional basis for payment

Section 48 of the Constitution provides for the payment of Members of Parliament:

Until the Parliament otherwise provides, each senator and each member of the House of Representatives shall receive an allowance of four hundred pounds a year, to be reckoned from the day on which he takes his seat.

Remuneration and Allowances Act 1990

Since 1901, the Parliament has enacted legislation to define the annual allowance for the purposes of Section 48 of the Constitution. Schedule 3 subclause 1(2) of the Remuneration and Allowances Act 1990 describes the annual allowance payable as equal to:

(a) the minimum annual rate of salary payable to an employee with a classification of Senior Executive Service (SES) Band 2 of the Australian Public Service (APS) or

(b) if the regulations prescribe a percentage (not more than 100 per cent) of a reference salary—that percentage of the reference salary (see below).

Regulations

Section 8A of the Remuneration and Allowances Act 1990 allows the Governor-General to make regulations necessary to give effect to the Act. Remuneration and Allowances Regulations 2005 are now in force and prescribe a percentage of the reference salary.[3]

Remuneration Tribunal

The Remuneration Tribunal is an independent statutory body established by the Remuneration Tribunal Act 1973. This legislation allows the Tribunal to inquire into and determine allowances paid out of consolidated revenue to senators and members.[4] The Tribunal's Report 1999/01 states that 'the Government can choose to accept or reject the Tribunal's advice on these matters …'.[5] The commencement of the Remuneration and Other Legislation Amendment Act 2011 restores the power of the Remuneration Tribunal to determine parliamentary remuneration. The legislation also removes the power of the Parliament to disallow parliamentary remuneration determinations made by the Tribunal.

Reference Salary—under the PEO Classification

Report 1999/01 by the Tribunal recommended that the annual allowance be linked to a reference salary under the Principal Executive Office (PEO) Classification Structure.[6] The Government accepted this recommendation and made the Remuneration and Allowances Regulations 2005 to create the link. The Regulations provide for the reference salary to be 100 per cent of the rate determined by the Remuneration Tribunal for Band A of the PEO Classification.

The Remuneration Tribunal's amending Determination 2008/10 increased Reference Salary A in the PEO Classification by 4.3 per cent to $132 530 from 1 July 2008. Consequently, for the purposes of the annual allowance in 2008/09, the Remuneration and Allowances Regulations reduce Reference Salary A by 4.3 per cent.

From 1 July 2008—Amended regulations, a varying percentage of Reference Salary A

On 26 May 2008, the Rudd Government introduced the Remuneration and Allowances Amendment Regulations 2008 (No. 1) amending the Remuneration and Allowances Regulations 2005 to freeze the annual allowance at $127 060 per annum. Rather than 100 per cent of Reference Salary A, Regulation 5 now describes the percentage as:

Regulation 5 Remuneration and allowances of Senators and Members of the House of Representatives

(2) For the financial year commencing on 1 July 2008, and for each subsequent financial year:

(a) the percentage is the percentage of the reference salary which, when applied to the reference salary, reduces the reference salary by the amount (in whole dollars) by which the reference salary was increased by the Remuneration Tribunal for the financial year commencing on 1 July 2008

For the purpose of calculating the annual allowance, Regulation 5 has the effect of reducing Reference Salary A in the PEO Classification by the percentage necessary to arrive at the rate payable at 30 June 2008, that is, $127 060.

Note that the Regulations introduced the new arrangements for the 2008/09 financial year and then 'for each subsequent financial year'. The Remuneration Tribunal has explained arrangements for future financial years as follows:

The application of the Tribunal's annual adjustment increased Reference Salary A to $132,530, with effect from 1 July 2008. The effect of the amending regulation is that that parliamentary base salary will remain at $127,060 from that date for 2008/09. In future years, parliamentary salary will be equal to Reference Salary A, as determined by then Tribunal, less $5,470 (the difference between $127,060 and $132,530) per annum. [7]

In 2011 the Government accepted the recommendation of the Report of the committee for the review of parliamentary entitlements to restore the power of the Remuneration Tribunal to determine parliamentary base salary.[8]

On 20 June 2011 the Remuneration Tribunal released Determination 2011/11 Principal Executive Office (PEO) Classification Structure and Terms and Conditions which set Reference Salary A at $146 380. On the basis described above, that is Reference Salary A less $5470, the parliamentary base salary increased to $140 910 with effect from 1 July 2011.

The annual allowance for senators and members is $140 910 per annum from 1 July 2011

The applicable Principal Remuneration Tribunal Determination is Determination 2005/19, Principal Executive Office (PEO) Classification Structure and Terms and Conditions.
The applicable regulations are Remuneration and Allowances Regulations 2005, SLI 2005 No. 308

Parliament

Like all delegated legislation, Tribunal determinations are tabled in Parliament. Parliament may resolve to disapprove any tabled determination. In 1974 Parliament disapproved the Tribunal's determination increasing the annual allowance to $20 000 per annum. In the decades since then Parliament has also modified determinations, postponed increases and enacted reduced allowances previously determined by the Tribunal as an example of wage restraint.[9]

Considerations and adjustments

Parliament has accepted a link, via regulations, between the annual allowance and Reference Salary A in the PEO Classification Structure. The PEO determination, including the reference salary, is reviewed annually by the Tribunal.

Under the Remuneration Tribunal Act 1973, the Tribunal has wide scope to consider factors when reviewing the PEO Classification. The Tribunal has indicated that these factors include: key economic indicators; other specific indicators such as the Wage Price Index; salary outcomes in the public (and to a lesser degree) private sector; the principles of wage determination and decisions of the Australian Industrial Relations Commission.[10]

The annual allowance—a brief history

At the Constitutional Convention at Sydney in 1891, Sir Samuel Griffith said:

One of the first things to be done by the parliament of the commonwealth in its first session would be to settle the salaries of ministers, and a great number of other matters of that kind. We have, therefore, given them power to deal with this subject. We did not think it necessary to make this is any sense a payment of members bill. We lay down, however, the principle that they, are to receive an annual allowance for their services, and we thought that it should start in the first instance at £500.[11]

At the Adelaide Convention, however, the draft constitution bill debated specified an amount of £400 and this was the annual allowance subsequently enacted in the Constitution.[12]

In 1907 parliamentarians made themselves liable to the payment of State income taxes.[13] Tax concessions for electorate expenses were allowed from 1925.[14]

Between 1901 and the establishment of the Remuneration Tribunal in 1973, Parliament adjusted allowances following decisions of executive government or as the result of recommendations from committees of inquiry.[15] Justice Kerr in 1971 noted that during this time there was 'no fixed pattern of approach' to the timing and method of reviewing annual allowances—a process that invariably attracted criticism.[16]

In 1971 the Kerr Inquiry suggested the establishment of a 'Salaries Tribunal … authorised by legislation to review salaries and report at regular stated intervals.'

Kerr also wrote:

Nothing … should prevent the Parliament or the Government from rejecting recommendations or from taking action not in accordance with what is recommended.[17]

From its establishment in 1973, the Remuneration Tribunal, using a range of evidence and indicators, determined the annual allowance with reference to second division officers of the Commonwealth Public Service.[18] Adjustments were then made by applying National Wage Case decisions. In 1979 the Government legislated to remove the Tribunal's recent determination that these adjustments be automatic.[19]

In 1987 the Tribunal convened a conference for interested parties to examine parliamentarians' salaries.[20] An independent review was consequently conducted for the Tribunal in 1988. The resulting report recommended increases based on work value and community pay standards. The review strongly recommended that there be no linkage between the annual allowance and APS salaries.[21] Increases determined by the Tribunal at that time were deferred.

With the Remuneration and Allowances Act 1990, the Government removed the Tribunal's power to determine annual allowances and allowed a phased increase to the allowance over three years. The legislation also provided a link with SES Band 1 salaries in the APS—in contrast to the recommendation in the 1988 review. Adjustments to the allowance were made by means of national wage case decisions and, from 1992, agreements between the Government and public sector unions.

Legislation enacted in 1994 ensured that the annual allowance was equivalent to the minimum APS SES Band 2 salary level. The Workplace Relations Act 1996 enabled SES salaries to be set through individual Australian Workplace Agreements (AWAs), thereby removing the standard against which the annual allowance was determined. With the expiry of the final APS Enterprise Agreement at the end of 1996, the mechanism by which adjustments were made to the annual allowance ceased.

Legislative changes to the APS in 1999, among other matters, amended the Remuneration and Allowances Act 1990 and the Remuneration Tribunal Act 1973 to establish the current arrangements.

Percentage increases in the annual allowance from 1996

Since 1996, the annual allowance has increased by the following (in actual dollars):

•        7 March 1996—1.6 per cent

•        17 October 1996—1.2 per cent

•        7 December 1999—4.45 per cent, the first stage of a 9.95 per cent two-stage increase

•        1 July 2000—5.5 per cent, the second stage of the 9.95 per cent increase

•        1 July 2000—2.2 per cent by virtue of an adjustment to the PEO Classification Structure

•        1 July 2001—3.9 per cent

•        1 July 2002—3.35 per cent

•        1 July 2003—4 per cent

•        1 July 2004—3.9 per cent

•        1 July 2005—4.1 per cent and

•        1 July 2006—7.01 per cent

•        1 July 2007—6.8 per cent

•        1 October 2009—3.1 per cent

•        1 August 2010—3.8 per cent

•        1 July 2011—3.6 per cent

Increases in the annual allowance compared with average wages from 1968

Table 1 below compares increases in the annual allowance with average wages. Graph 1 below shows the annual allowance and average weekly wages in real (inflation adjusted) terms since 1968.

Since the 1970s the annual allowance for members of parliament has declined relative to the average wage[22]. For instance in 1975 the annual allowance paid to an MP was nearly three times that of the average wage. In 2011 it was just over twice the average wage.

Much of the deterioration in the relative size of the allowance to average wages occurred during the 1970s and 1980s. This trend is illustrated in graph 1, in which the annual allowance and average wage have been converted into an index in real, that is, inflation adjusted terms.

From table 1 it can be seen that in the decade 1970 to 1980 MPs’ annual allowance, in real terms, grew at an annual average rate of just 0.5 per cent whilst real average wages grew by 2.6 per cent. In the 1980s real wages growth was fairly flat at just 0.3 per cent. However, the annual allowance for MPs actually fell in real terms by an annual average rate of 0.8 per cent. As a result the ratio of the annual allowance for MPs to the average wage fell from 2.9 in 1975 to 2.0 in 1990.

In the 1990s some ground was made up by the annual allowance relative to average wages. The annual average growth rate for the allowance, in real terms, was 2.4 per cent over the decade compared with just 0.8 per cent for average wages. This managed to raise the ratio of the allowance to average wages to 2.3 by the end of the decade.

Since 2000 real average wages growth has slightly outpaced the growth rate in the MPs’ annual allowance. As a result the ratio of the MPs’ allowance to average wages has slipped again.

Table 1: Annual allowance compared with average wages 1968–2011

Annual allowance
($ per annum)

Male total average wages ($ per annum) (b)

Ratio allowance to average wages

Year

Date of effect

Current prices

Real prices (2011 dollars) (a)

Current prices

Real prices (2011 dollars) (a)

1968

1.12.68

9 500

102 039

3 525

37 858

2.7

1973

1.4.73

14 500

121 950

5 256

44 203

2.8

1975

1.3.1975

20 000

130 146

6 987

45 465

2.9

1975

15.5.1975

20 720

130 084

7 597

47 694

2.7

1975

9.9.1975

20 000

124 685

7 659

47 751

2.6

1976

1.6.1976

21 250

119 147

8 739

48 997

2.4

1977

1.6.1977

24 369

120 360

9 656

47 693

2.5

1978

1.7.1978

25 692

115 387

10 637

47 771

2.4

1979

1.7.1979

26 720

109 774

11 606

47 682

2.3

1979

23.11.1979

27 575

109 992

12 091

48 230

2.3

1980

1.7.1980

28 816

107 487

13 139

49 011

2.2

1980

1.8.1980

30 026

112 001

13 139

49 011

2.3

1981

1.7.1981

36 000

123 202

14 771

50 551

2.4

1981

1.7.1981

33 013

112 979

14 771

50 551

2.2

1982

1.7.1982

36 000

109 536

17 201

52 337

2.1

1982

1 10 1982

38 500

113 840

17 602

52 048

2.2

1983

6.10.1983

40 156

109 310

18 875

51 379

2.1

1984

1.5.1984

41 802

113 965

20 011

54 557

2.1

1985

1.7.1985

42 889

107 253

21 018

52 559

2.0

1986

1.7.1986

45 543

104 643

22 796

52 377

2.0

1986

10.3.1987

46 065

100 902

23 176

50 766

2.0

1987

1.7.1987

47 815

101 493

23 828

50 578

2.0

1988

1.7.1988

49 180

97 215

25 350

50 111

1.9

1989

1.1.1989

55 000

105 560

27 483

52 747

2.0

1990

16.11.1989

55 000

98 856

28 156

50 606

2.0

1990

1.7.1990

58 300

100 628

29 339

50 641

2.0

1991

1.1.1991

61 798

104 145

30 533

51 456

2.0

1991

1.7.1991

64 768

108 331

30 001

50 181

2.2

1991

15.8.1991

66 387

111 039

30 001

50 181

2.2

1992

17.12.1992

67 715

111 896

31 258

51 652

2.2

1993

11.3.1993

68 663

112 421

31 868

52 177

2.2

1994

1.1.1994

68 663

110 893

32 619

52 681

2.1

1994

10.3.1994

69 693

112 557

32 619

52 681

2.1

1994

15.12.1994

74 460

117 697

33 620

53 142

2.2

1995

12.1.1995

75 949

118 062

33 990

52 837

2.2

1995

6.4.1995

77 438

118 823

34 115

52 347

2.3

1995

13.7.1995

78 987

119 757

34 240

51 914

2.3

1996

7.3.1996

80 251

120 242

34 949

52 365

2.3

1996

17.10.1996

81 856

121 321

35 507

52 626

2.3

1999

7.12.1999

85 500

122 842

38 657

55 540

2.2

2000

1.7.2000

92 000

125 314

40 085

54 600

2.3

2001

1.7.2001

95 600

127 015

41 681

55 378

2.3

2002

1.7.2002

98 800

127 192

43 386

55 853

2.3

2003

1.7.2003

102 760

128 938

45 753

57 408

2.2

2004

1.7.2004

106 770

130 929

47 041

57 685

2.3

2005

1.7.2005

111 150

132 297

49 950

59 453

2.2

2006

1.7.2006

118 950

136 216

51 916

59 451

2.3

2007

1.7.2007

127 060

142 842

54 778

61 582

2.3

2008

1.7.2008

127 060

136 065

56 880

60 911

2.2

2009

1.10.2009

131 040

137 843

60 623

63 771

2.2

2010

1.8.2010

136 040

139 965

61 702

63 483

2.2

2011

1.7.2011

140 910

140 910

64 471

64 471

2.2

Annual average percentage change

1968 to 2011

6.5

0.8

7.0

1.2

1970 to 1980

11.7

0.5

14.1

2.6

1980 to 1990

6.7

-0.8

7.9

0.3

1990 to 2000

5.3

2.4

3.6

0.8

2000 to 2010

4.0

1.1

4.4

1.5

2010 to 2011

3.6

0.7

4.5

1.6

(a) adjusted for inflation with the Consumer Price Index (CPI)
(b) average weekly wages annualised
Sources: Data on MP's allowance from Commonwealth Acts and Remuneration Tribunal Reports and Determinations.
Average wages and deflators from ABS, Consumer price index, Australia, Jun 2011, cat. no. 6401.0. Average weekly earnings, Australia, May 2011, cat. no. 6302.0.
Real values calculated by the Parliamentary Library

Graph 1

Table 1, Graph 1 and commentary on the comparison of the annual allowance and real wages by Guy Woods, Statistics and Mapping Section.

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[1].               The choice of phrase to describe the allowance payable under Section 48 of the Constitution is a difficult one. 'Basic salary' is commonly used in an informal sense and serves to distinguish it from salaries paid to ministers and office-holders. 'Parliamentary allowance' has consistently appeared in legislation enacted since 1901 and is used by the Department of the House of Representatives in a formal sense. 'Annual allowance', as well as complying with Section 48, is used in most state and territory legislation that links state and territory parliamentary salaries to those of their federal counterparts.

[2].               Federal parliamentarians are also entitled to other benefits and allowances described in legislation. See L Manthorpe, Parliamentary allowances, salaries of office and entitlements, Background Note, Parliamentary Library, 2011.

[3].               Regulations are made by the Governor-General on the advice of executive government and published in the Commonwealth of Australia Gazette.

[4].               Remuneration Tribunal Act 1973, subsection 7(1).

[5].               Remuneration Tribunal, Report on Senators and Members of Parliament, Ministers and Holders of Parliamentary Office—Salaries and Allowances for Expenses of Office—December 1999, Report 1999/01.

[6].               The PEO classification structure provides a framework for the negotiation of the terms and conditions of PEO employment.

[7].               The reference salary in Determination 2005/19 is amended by Determinations 2007/04 and 2007/08, both with effect 1 July 2007. Please see 2007 Amending Determinations in Parliamentary allowances, salaries of office and entitlements, Background Note, Parliamentary Library, 2011.

[8].               Report of the Committee for the Review of Parliamentary Entitlements (the Belcher review), April 2010, p. 12.

[9].               Remuneration Tribunal 1982 Review, pp. 18–21 and Report 1999/01, op. cit., pp. 1–5.

[10].               Remuneration Tribunal, Explanatory Memorandum: Determination 2004/15 – Principal Executive Office (PEO) Classification Structure Terms and Conditions. WCI is a product of the Australian Bureau of Statistics. The Tribunal's Report 1999/01 highlights some of the factors given consideration by the Tribunal during earlier deliberations.

[11].               Samuel Griffith, Official Report of the National Australasian Convention Debates, Sydney, 2 April 1891, p. 654.

[12].               Official Report of the National Australasian Convention Debates, First Session, Adelaide, 22nd March to 23rd April 1897, pp. 1032–34.

[13].               Commonwealth Salaries Act 1907.

[14].               Earle Page, House of Representatives, Debates, 4 June 1947, p. 3355. An Electorate Expense Allowance, not subject to income taxation, was paid from 1952.

[15].               Including—Report of the Committee of Enquiry into the Salaries and Allowances of Members of the National Parliament (Nicholas Report), 1952; Report of the Committee of Enquiry into the Salaries and Allowances of Members of the Commonwealth Parliament (Richardson Report), 1955; Report of the Committee of Enquiry into the Salaries and Allowances of Members of the Commonwealth Parliament (Richardson Report), 1959; Salaries and Allowances of Members of the Parliament of the Commonwealth: A Report of Inquiry by Mr Justice Kerr, (Kerr Report), 1971.

[16].               Mr Justice Kerr, ibid., p. 12.

[17].               ibid., p. 16.

[18].               With the enactment of the Public Service Reform Act 1984, the Second Division of the Commonwealth Public Service was replaced by the SES. See Public Service Reform Bill 1984, Bills Digest, no. 72, 1984, p. 2.

[19].               Remuneration and Allowances Act 1979.

[20].               Remuneration Tribunal, 1987 Review, pp. 5–12.

[21].               Cullen Egan Dell, Report on the Pay and Allowances for Members of Parliament: prepared for the Remuneration Tribunal, 1988, pp. 18–19.

[22].               Based on male total average weekly earnings.