Do MPs make more from capital gains than their salaries?
By and large... yes. On average almost three times more
MPs capital gains
First, a recap from Friday’s post on MPs gains from the property market. $75m of capital gains were identified from 173 residential properties in that analysis. Across total NZ based residential properties held by MPs (220), we estimated a capital gain in the current parliamentary term of $95m. For more, see Friday’s post:
In that post, the below table showed an average gain from property owned of $626k in the current parliamentary term.
But the average doesn't tell the whole story. Using the data previously collected, we can compare gains from property at an individual level with salaries earned during the current term.
What are MPs even paid?
Per Parliament's website, the Parliamentary Salaries and Allowances Determination (No 2) 2020 came into effect on 18 October 2020. This was valid until 9 July 2020, when it was temporarily replaced by the Parliamentary Salaries and Allowances (Temporary Reduction—COVID-19) Determination 2020. The effect of the subsequent change was to reduce salaries when the outcome of coronavirus was uncertain. This change was only temporary, with the determination expiring on 6 January 2021. The previous rates kicked back in at this stage and have been in place ever since.
To summarise for the current parliamentary term:
Start of the parliamentary term —> 6 January 2021: Reduced salaries
6 January 2021 —> end of January 2022: Regular salaries
An extract of the rates under these two settings are as follows:
Reduced salaries:
Regular salaries:
Across party lines, this leads to the following annual average salaries before and after the reset on 6 January 2021:
Reasons for higher salaries from the Labour Party, Greens and Maori party are to do with PM / Deputy PM / Ministerial positions, which earn a salary premium, as shown in the salary determination extracts above.
These flow into the total amount earned in the current parliamentary term:
Note this is only from base salary and extras for being in cabinet, whips, speaker, etc. Allowances are not included. The housing allowance is especially attractive to MPs, as MPs can subsidise capital gains from apartments held in Wellington. An additional part on this is coming shortly; subscribe to access as soon as it comes out.
Takeaway: the median annual earnings in New Zealand in 2021 were $56,836 . With the base MP salary at $163k, MPs are already financially in a very fortunate position compared to most of their constituents.
Salaries vs gains
MPs salaries can then be compared to the gains previously detailed above. If we look at the split across party lines, we can see that 85 MPs made more from property than their parliamentary salary:
Eight MPs didn't own any residential property. So, in reality, the percentage of property-owning MPs that have made more from capital gains in the current term than their salary is 76%. Further, the gains figures we are using are limited to the 173 residential properties (of 220 total residential properties) for which we have data. If we included the remaining 47 properties, the 76% would likely increase further.
Another way to look at this is by the ratio of capital gains to salaries. Where that ratio is more significant than one, capital gains are greater than salary. Across party lines, this is as follows (again based on our 173 properties with data):
The Maori Party is the only party where (on average) MPs are not earning more from property than they are from salaries. National seems to be the outlier, which is caused by a few factors:
There are three significant outliers for National, with 34, 17, and 14 times salary earned. When removed, the average gains to salary ratio for National drops to 3.8 times.
On average, National MPs hold more property per person at a higher initial valuation. See Friday’s post for paid subscribers for additional details.
On average, National salaries are lower as they do not hold ministerial positions - see average salary figures above.
Excluding the three National party outliers mentioned above, the salary multiples across party lines are as follows:
These have been compared to purchase prices (total per MP) to show the relation. Effectively, the higher the purchase price, the higher the chance of outsized capital gains.
What does this all mean?
Most of our MPs make more from capital gains than their parliamentary salary. This must seem like a perverse joke for those unable to buy a first home or even find a rental. The housing market is rewarding those tasked with making it fairer more than the New Zealand public is able to. At what stage is it in an MPs own self-interest to do nothing about house price inflation?
Think of it a different way. If a lobbyist were to hand an MP a briefcase full of cash, there would be (at least) a perception that it might sway their decisions. While capital gains are not briefcases of money, the opportunity to perceive conflicts of interest is significant. Voters need to be able to challenge MPs on what they have done to improve the housing market without their record being tainted by the suggestion of improper behaviour.
As a first step, material capital gains accumulated should be disclosed in the register of pecuniary interests. This would allow an MPs record to stand alone without the perception of being conflicted. While this won't change the housing market itself, it will improve transparency to the public.