Recently our federal politicians here in Australia decided to give themselves a pay raise. They did this through an ‘independent’ body. Once they found out the Remuneration Tribunal was in favor of drastically increasing their pay, they quickly gave them unilateral powers to determine politicians pay in order to avoid the political inconvenience of providing themselves with an increase.

Their pay is not linked to performance (their performance has been rubbish in the last few years). Their pay is determined by themselves. This is an agent-principle problem, where the interests of a worker and employee are not aligned.

A worker wants to work the least amount possible and get the highest wage possible (in this case the politicians are being paid by the Australian tax payer).

The worker wants their employee to work as much as possible with the least amount of pay.

Further problems arise when the employer is not able to monitor the output of the employee (or at least not properly).

One justification of the pay increase is the saying ‘if you pay peanuts, you get monkeys.’

Unfortunately for Australians, we are paying caviar prices and getting downs syndrome monkeys.

The justification for this pay increase was to attract better quality candidates to put themselves up for election for the local seats in parliament. Unfortunately this cannot happen until the next election… but guess what? The pay increase happens immediately (even though the next election isn’t scheduled until around 2 years from now).

Politicians shouldn’t be blamed for this, they are doing what is in their (economic) best interests. It isn’t really a political issue because both sides of politics are benefiting from it. The Greens party (third side of politics) feign outrage and then happily accept the pay increase.

What Australians need is a system whereby they can adequately monitor the performance and pay of politicians. There are a number of ways.

1) They could have a system whereby their politicians must perform some significant KPI (key performance indicator) or face loss of income.

For example, you could concentrate on an economic KPI (which is appropriate since we are talking about pay for politicians).

We could say that the government must keep the budget in surplus and must keep the economy growing (out of recession) or their pay reverts back to the minimum wage. If they succeed, each member of parliament gets paid a large sum ($500 000 each, $1 million for the front benchers).

The economy would be so well managed that within a year we would turn our current deficit into a surplus, all the while keeping economic growth strong (since money wasn’t wasted by government).

The problem with this system would be inflation (government printing money to ensure their target is reached) and also the fact that the government reports on their own progress (and not an independent body).

So in other words, they would ‘cook the books’. They would use accounting tricks to show that there was economic growth and surplus where they may not have been.

It would be like if you allowed kids to write their own report cards… every kid would come home with straight A’s. Same principle applies here.

I have a second alternative.

2) We force political candidates to vote for or against a pay increase during an election. You would do this by placing (on the voting slip) whether or not they voted for or against a pay increase.

So for example, a person may look at their voting slip and it would look something like this:

John Smith (Y)

Steve Sims (N)

Sarah Jones (N)

etc, etc, etc

You would see the name of the candidate and whether they supported a pay rise (Y) or were against it (N).

A voter would be able to see whether or not the candidate wanted a pay increase, and could factor that into their decision regarding who they wanted to vote to employ to run their country.

This would force political parties in marginal seats (seats which could realistically be won by each 2 or more parties) to place an ‘N’ next to their candidate, this decreasing their chances of increased pay. A candidate would know that a vote against increased pay would increase their chances of being elected.

There are a few problems with this system.

Firstly, it requires politicians to pass this system into law. They won’t do this as it harms their chances of getting paid more.

The second problem involves political parties playing games with the system. They may decide that any safe seat (a electorate which only one party has a realistic chance of winning) will vote ‘yes’ for a pay increase. They may find enough safe seats to pass any pay increase.

This does, however, leave them vulnerable to independent local candidates. It would also force political parties to vote ‘no’ in marginal seats, unless they came to a prior agreement. This is why it is important to have the vote be private, and not allow it to be changed once it has been cast (say, a month before an election).

3) A final way to prevent ridiculous pay increases would be to have term limits on parliament. So a single person may only be allowed to serve in parliament once and no more. Any pay increase would only be enacted after the next election (whenever that may be).

The obvious weakness here is that politicians on both sides will not vote this into law in the first place… unfortunate as it would get rid of the career politician over night. A person would make their bed and be forced to sleep in it.

I would also get rid of any pensions to a members of parliament (which are a complete fraud). If it was up to me (thankfully for politicians it isn’t), politicians would be getting minimum wage.

This would encourage those people who have made it in business or another area (and therefore have no need for money) to get into politics for the love of their country or for the ego boost that comes along with it. They may also be encouraged due to the decreased energy required for playing politics.

That’s all there is to say for now.

Regards

-Simon