It’s not easy to calculate how much an Australian Prime Minister really earns. Jane Nethercote (8 September) notes: “Prime Minister John Howard is on $336,570 (base salary of $118,950 plus PM’s pay of $190,320 plus electorate allowance of $27,300)”.

Trouble is, base salary is not the same as salary package. For senior politicians, unlike most other employees, hidden benefits can be a bigger part of the package than base, making comparison with private sector packages much harder.

It might suit the prime minister for people to think he is on a $336k salary – his package is actually worth more than a million per annum.

Benefits include a car, driver, private plane, travelling allowance, and travel entitlements for his family: maybe only worth an extra $100k a year. Then there’s housing: Kirribilli (say $2000/week) and the Lodge (say $1000/week) – total: $156,000 pa. An underestimate for furnished prestige residences with staff, but let’s err on the low side. To be fair, the Prime Minister does not only live in the residences, he also conducts official functions. If he entertains official visitors on average four hours every day of the week (which he doesn’t) it’s less than 20% of the time; rounding in favour of the PM, the benefit is still some $124,000.

The real kicker though is deferred benefits after his retirement. Not just superannuation, although this is significant: depending on when the current PM retires, this alone would be worth around $200,000-$240,000 a year for the rest of his life – in current package terms, much the same.

Post-retirement there’s free business/first class travel, serviced office, full-time assistant, and car and driver on call for life. Only an actuary could estimate how much these benefits are worth in current salary package; it depends on age, life expectancy and time in office. For a PM taking office young and serving one term it could be worth more than $1m for each of three years; for a PM taking office older and serving longer, it’s less. Assume Howard retires in the next five years, the present value of post-retirement benefits is still likely worth an extra half million a year in salary package. This gives us a total package of $1.26m – estimated conservatively.

This is not excessive; Prime Ministers, whatever their politics, work extraordinarily hard, Howard more so than many. They have huge responsibilities, and deserve a decent wage: but don’t pretend it is nearly a quarter of its real value.

Few employees get to hide slabs of their income in packaging. Politicians do. This is what gets up the nose of voters. Ordinary MPs don’t make nearly as much as the PM, nor do Ministers. But they do get superannuation, lifetime unlimited gold pass travel if they have served six years (ministers) or twenty (members and senators), a consolation prize of “severance travel” for short timers, and other benefits such as private plated vehicle, spouse travel, telephones, travel allowance and electorate allowance while in office. See Remuneration Tribunal Determination 2005/09 and 2006/11 – Remuneration and Allowances for Holders of Public Office and Members of Parliament or various Parliamentary library research papers (eg here) .

Voters are not as dumb as politicians think: they know (even if they don’t know the details) that politicians are making up for low base salaries with large perks.

If we had transparent government, the government actuary would work out how much politicians’ pay was really worth, and the government would publish the figures. Or even better, we’d increase the pay to the real level, and stop pretending.

Peter Fray

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