How some NZ MPs benefit from parliamentary expenses

May 18th, 2009 at 9:22 am by David Farrar

Political watchers around the world have been following the saga of the UK parliamentary expenses scandals. UK Labour has dropped to 22% in the latest poll, as the Telegraph reveals claims for mortgages that were paid off, moat cleaning and the like.

Most of these excesses are not possible in NZ, as MPs don’t get to claim accommodation expenses except rent and interest on mortgages. But even then, we have not been lily white.

Now many readers will remember the scams by Labour’s Marian Hobbs and Phillida Bunkle from the Alliance who were claiming such expenses, despite both being Wellington based MP with homes in Wellington. Bunkle did it by claiming her primary residence was a bach just north of the Wellington boundary, and Hobbs claimed her primary residence was in Christchurch, despite having stood for Wellington Central. This made the scam legal – but not ethical.

The point of such expense regimes, is that an MP is not left worse off for just doing their job. If an Auckland MP has to spend three nights a week in Wellington, then of course they should not pay personally for it. But the idea is not that an MP who normally lives in Wellington, can make some extra money.

But the Bunkle/Hobbs method is not the only way, an MP can benefit from the expenses claims.In the light of the UK revelations, I thought it would be useful to highlight other ways an MP can benefit.

Look at section 3.30(1)(b) of the expense directions and it states an MP can be reimbursed for actual and reasonable accommodation expenses in Wellington, if they live outside the Wellington commuting area for.

(i) accommodation owned by that member; or
(ii) accommodation rented by that member on a continuous basis for use in lieu of overnight accommodation; or
(iii) accommodation in commercial premises; or
(iv) other private accommodation.

Let us look at each of these in turn, and who benefits from what:

(iii) accommodation in commercial premises

This is where the MP stays in a Wellington hotel, as many do. They can claim up to $160 a night, up to a maximum of $24,000 a year. That means a maximum of 150 nights a year can be claimed – an average of three nights a week.

In this case the MP gains no benefit. It is nice and simple. Not that popular with some MPs though as it means they have to book in everytime, and have no permanent base where they can leave clothes etc.

(iii) other private accommodation

This is where the MP stays in a private residence not owned by them – probably owned by a friend. They can claim up to $50 a night, up to a maximum of $24,000 a year.

In this case the MP gains no benefit, but the home owner can benefit, and they may be related to the MP. Having said that I am not sure if any MP uses this option.

(i) accommodation owned by that member

This is a potential problem area, but note section 3.30(2) avoids most of the UK problems:

No principal component of any mortgage payment or any capital improvement to premises may be claimed under this clause.

So an MP can only claim the interest on their property. The maximum is again $24,000 a year, so if interest is at say 8%, then the maximum will be claimed if the principal is $300,000 or more.

This option does provide some potential benefits to the MP.

MPs can maximise benefits from this situation, so that the taxpayer pays the maximum$24,000. Let us say the MP buys two $500,000 houses with $600,000 of equity and $400,000 from the bank. House A is in Wellington and House B in the electorate.

Normally you may have House A and House B both with $300,000 of equity and $200,000 of mortgage. However at 8% interest it means the MP can only claim $16,000 from the taxpayer for House A. So the smart MP arranges their finances so that House A is $200,000 equity and $300,000 mortgage and House B is $400,000 equity and $100,000 mortgage. This means they get an extra $8,000 a year from the taxpayer.

Now to be fair to said MPs, there is an opportunity cost of them living at their own place – it means they are not renting it out to someone else. They may be able to rent it out for $24,000 a year – or even more, if they did not use it at their second home.

But nevertheless they do have an incentive to keep the mortgage high on their Wellington home, so they get paid the maximum $24,000. One could arrange it so one is getting $24,000 a year on a $350,000 apartment. Not many landlords would be able to rent out a $350,000 apartment for $460 a week, so the MP does make a significant profit, plus they have a guaranteed tenant – themselves.

So a question to be pondered, is should an MP not be eligible to claim their interest payments as an accommodation expense? Otherwise you have an incentive for them to keep the interest payments high to maximise the expense they can claim.

Maybe a journalist could ask how many MPs are living in a place they own in Wellington, and what proportion of them are claiming the maximum $24,000 in interest payments? The Parliamentary Service won’t release individual details, but they might release summary information.

But for the really smart MP, there is an even better way to maximise your profits from the taxpayer. You see eventually the house you own will have the principal repaid, meaning the interest you can claim falls to under $24,000 a year. How do you ensure you keep it at $24,000 a year?

(ii) accommodation rented by that member on a continuous basis for use in lieu of overnight accommodation

This is where the MP either rents an apartment outright for their exclusive use, or is a flatmate in an apartment. The maximum you can claim is $24,000 a year, which is $460 a week. Many MPs do this, as it gives them a permanent base where they can leave clothes, have some food stocked up etc. The owner of the property benefits as they get a tenant, who generally will not cause any problems in terms of non payment, damage etc – and they will often be a guaranteed tenant for three years. MPs don’t tend to change apartments in Wellington a lot, as it is mainly just a place to sleep three nights a week.

On the face of it, the MP doesn’t benefit from such an arrangement – the landlord does. But what if the MP is effectively a landlord? How – you set up your own personalised superannuation scheme, and get your super scheme to buy the apartment, and rent it to you for the maximum $24,000 a year.

This way you can get $24,000 a year from the taxpayer, even long after the mortgage has been paid off. Now some will say, but if the MP was not renting it to themselves, they could rent it to someone else. Yes – but see above about the massive benefits of renting to an MP – guaranteed income with no breaks for three years. No having to pay a property manager to manage the property etc.

Now the Parliamentary Service will tell you that when an MP rents their own house through their Super Fund, they get an independent market valuation. This is true, but valuations are not a precise science. That would stop an absolute hovel being rented out for $460 a week, but really you know the difference between a $400 and $450 a week apartment is very subjective. And MPs will buy apartments that they know they can get the maximum allowance for.

No matter how much one tries to mitigate, there is a fundamental conflict in my opinion between the MP effectively owning the property through their Super Scheme, and being the tenant with the taxpayer paying the tenancy.

It is all within the rules, but so were most of the rorts in the UK. As David Cameron said, the issue is not the rules, but whether the behaviour is ethical and correct. And most of all, it is about whether the rules should allow an MP to maximise profit from their Wellington accommodation.

The Greens have been doing this for years, and they claimed a while back:

This is also what we are trying to do in the Green Futures Superannuation Fund, set up in 1997 by the Green MPs to invest our own savings. We started by investing in housing for MPs to live in that was close to Parliament so we can all walk to work.

Now this is just nonsense. They did not set up the super scheme to so they could live close to Parliament. There are hundreds of houses and apartments available for lease near Parliament. They set up the scheme so they could maximise the income from the taxpayer for renting the property to themselves. They almost admit this later:

With the security of the property market as a base we have now also invested in NZ’s only locally owned and made wind generation company … All very small stuff, as befits the amount we have to invest, but it has still outperformed larger funds over the last year.

Or maybe it outperformed the larger funds because it had a guaranteed taxpayer funded tenant – themselves.

How much can an MP benefit from the Super Scheme owning the rental property rort? Well here’s a typical example. Take this apartment in Thorndon which has rent set for $460 a week. Its GV is $340,000.

Now an MP’s salary is $131,000 a year. They get a super scheme subsidy of 2.5:1 up to a maximum 20%. This means they put in 8% and the subsidy is 20%, so 28% of $131,000 is paid into their super scheme every year – that is $36,680.

Now let us say the MP (through the super scheme) borrows the entire $340,000 to buy the property (we’ll ignore deposits for now and assume they have property elsewhere to guarantee this mortgage).The MP gets a 5.99% mortgage from Kiwibank. This means the interest in year one is $340,000 x 5.99% = $20,366. However their Super Fund puts in $36,680 plus the taxpayer again puts in $24,000 through the $460 a week rent. That means the interest of $20,366 is matched three times over with the $60,680 of repayments.

If you repeat this each year, then within seven years that MP’s Super Fund owns that $340,000 property outright (plus any increase in valuation).

This is not a new development. The Greens have been doing this since at least 2001. So do many other MPs. I’ll be honest – if I was an MP I would probably do exactly the same – why wouldn’t you?

It is all within the rules, but it is a loophole. If you own the property yourself, you can claim interest only. If you own it through a corporate shell such as your Super Fund, then you can get the taxpayer to pay rent on your behalf to yourself.

So the question we should be asking, in the wake of the UK experience, is should the rules be changed? Should we ban MPs from claiming accommodation expenses for properties they own (directly or indirectly), or have a beneficial interest in?

If an MP wants to have their Super Fund invest in property, then they still can. But they, like any other landlord, should have to go out and find tenants for it who are willing to pay the market price. For example let the “Green Futures Superannuation Fund” find its own tenants, rather than the guaranteed income of the Parliamentary Service!

While I have used the Greens Fund as an example, this is because it is in the public domain. This is not a criticism of the Greens only. I am sure MPs from all parties take advantage of the current rules, and this should not be surprising. Again the issue for me, is whether the rules should be changed to prevent MPs claiming accommodation expenses for any property they own – either directly or through a Super Fund. At the end of the day you should not be both landlord and tenant, when the taxpayer pays the bill.

Tags: Greens, MPS, MPs expenses, Parliament, taxpayer funding

This entry was posted on Monday, May 18th, 2009 at 9:22 am and is filed under NZ Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

24 Responses to “How some NZ MPs benefit from parliamentary expenses”

Tauhei Notts (1,264) Says:
May 18th, 2009 at 9:50 am
A reasonable man adjusts himself to the world.
An unreasonable man tries to adjust the world to himself.
Those Green politicians seem remarkably reasonable.
They have adjusted themselves to the world.
Now, if a taxpayer adjusted himself to the world by rorting the Working For Families scheme just as the pollies rort the out of Wellington accommodation supplement what would happen?
The Tax Department would bring out the heavy artillery called section GB44 of the Income Tax Act 2007 and knock that recalcitrant tryer into the middle of the next decade.
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Bryce Edwards (248) Says:
May 18th, 2009 at 10:42 am
This is a very comprehensive summary and analysis of the housing allowance. I’m surprised that the media aren’t investigating this at the moment. However, I tend to think that any personal MP corruption or misuse of resources is insignificant compared to the political misuse of resources. Obviously the Alliance and Act party scandals about investigations into their misuse of MP out-of-parliament electorate allowances come to mind (and then there are all the parliamentary funds for “Members’ Support” etc used for advertising, pledge cards, etc.).

In terms of MP allowances, it would be interesting to find out whether the non-Auckland MPs that are currently campaigning in Mt Albert are doing so via parliamentary travel and accommodation allowances. Is Russel Norman really paying his own way to Auckland and finding his own accommodation during his campaigning? What about Trevor Mallard, who I see was recently blogging about his experience on the campaign trail? etc. There seem to be a lot of non-Auckland MPs in Mt Albert recently. Unless they are paying their own way, or legitimately and genuinely in Auckland on other business, their use of tax-payer funding to campaign could be classified as ‘corrupt’.

I remember Act party list MP Donna Awatere Huata was investigated by the Serious Fraud Office in 2001 for spent 35 days during the 1999 election campaign in the Auckland Central electorate, for which she was the Act candidate, and claimed the parliamentary away-from-parliament allowance. She denied that she was in the electorate on party business despite it occurring during the election campaign! It’d be good to see these other MP investigated.

Bryce
http://www.liberation.org.nz
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davidp (2,739) Says:
May 18th, 2009 at 11:03 am
On the outside, the Greens are all organic hairy-armpit grandmotherly types like Fitzsimmons. Or wind-powered crazy aunt types like Delahunty. But inside, they’re able to cook up a financial scheme that a derivatives trader would have been proud of.
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Murray (8,832) Says:
May 18th, 2009 at 12:07 pm
I have a sceme.

You run for office based on we pay you X with a graduated scale based on how far away your electoroate is from the seat of government. Over and above this we offer you additional benfits of $0

You are required to the do the job and we’re required to pay you. If you are not happy with those terms please do not apply for the job.

That is all.
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g_ (28) Says:
May 18th, 2009 at 12:20 pm
it would be more cost effective to scrap the whole housing allowances rubbish, just buy a couple of floors on a nearby apartment building and allow non-wgtn mp’s to stay for free. if they don’t like the room they are given they can stay somewhere else at their own expense. Perhaps even double-bunk them to half the number of rooms!
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Murray (8,832) Says:
May 18th, 2009 at 12:28 pm
Move parliament to the Rangipo desert and put them under canvas.

Lets see them queue up to be elected then.
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burt (5,937) Says:
May 18th, 2009 at 12:29 pm
It is quite lucky really that none of these rorts ever get prosecuted in the courts. Imagine our “transparency international” rating if we were honest about how corrupt and self serving our MP’s really are.

Phew, lucky we can cover up the corruption to get a low corruption score….
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F E Smith (2,543) Says:
May 18th, 2009 at 12:56 pm
How about going back to the old days, with no salaries and no pensions at all for MPs? Cut the number of sitting days (and therefore hopefully the amount of legislation introduced) and simply cover expenses to and from Wellington (together with g_’s proposal, which I quite like) and electorate expenses as per now.

That would make being an MP a public service, one that isn’t there to provide former trades unionists, lecturers and teachers with a taxpayer subsidised free ride.

I suppose the person who I think shows this type of ethos is, oh, how about John Key? I think he would fit this criteria nicely.
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Ratbiter (1,265) Says:
May 18th, 2009 at 1:03 pm
F E Smith – Yes! let us have government by the very rich (who can afford to work for free) instead of by representation. That seems fair.
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F E Smith (2,543) Says:
May 18th, 2009 at 1:05 pm
No Ratty, they still have to be elected. It just ensures that they have to be able to afford the time off!
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Ratbiter (1,265) Says:
May 18th, 2009 at 1:18 pm
F E Smith – we have an established mechanism for voting out parties/MPs that we believe are not performing – regardless of whether they can afford to work for free or not.

IMHO as soon as personal wealth becomes an entrance prerequisite for standing for Parliament, then you have a class system.
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AG (1,581) Says:
May 18th, 2009 at 1:41 pm
I suspect FE Smith’s tongue is firmly in his cheek … interestingly, though, the issue of politicians, pay and promises to serve for free led to one of the great US Supreme Court cases on freedom of speech:
http://law.jrank.org/pages/13411/Brown-v-Hartlage.html
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F E Smith (2,543) Says:
May 18th, 2009 at 1:46 pm
surely not…

Interesting case, AG. I just love US court cases. They really go to town on each other over there and make us seem like shrinking violets by comparison.
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Chuck Bird (3,458) Says:
May 18th, 2009 at 2:05 pm
(iii) other private accommodation

This is where the MP stays in a private residence not owned by them – probably owned by a friend. They can claim up to $50 a night, up to a maximum of $24,000 a year.

In this case the MP gains no benefit, but the home owner can benefit, and they may be related to the MP. Having said that I am not sure if any MP uses this option.

How do we know that the MP gains no benefit? I would no be surprised if some of them would not be above splitting the $50 with their friend or relation. Hobbs and Bunkle would be good examples. Has anyone noticed that those on the left are generally more likely to have the snout in the trough?
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backster (1,784) Says:
May 18th, 2009 at 2:20 pm
I wonder if any of the Pommie MPS spend $35,000 a year on taxi fares.?……..As for the accomodation rorts a simple standard accommodation allowance should be the only option available.
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Chuck Bird (3,458) Says:
May 18th, 2009 at 2:21 pm
I suppose the person who I think shows this type of ethos is, oh, how about John Key? I think he would fit this criteria nicely.

I think John Boscawen would also fit this criteria nicely. It would be nice to have more MPs who are generous with their own money not just ours.
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OldNews (40) Says:
May 18th, 2009 at 4:21 pm
The Queensland Parliament actually provides a reasonable model for accomodation. A lot of Queensland MPs live a lot, lot further away from Brisbane than most our MPs do. So the Parliament complex includes a high-rise ‘annex’ which has rooms sleep quarters for MPs. Much more efficient. Not only does it stop accomodation rorts also cuts down taxi fares etc. Would be easy enough to build something suitable where the ugly carpark out the back now is.
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davidp (2,739) Says:
May 18th, 2009 at 4:28 pm
>The Queensland Parliament actually provides a reasonable model for accomodation.

Parliament already seems to be an insular environment. I’d prefer that MPs spent at least some of their time out in the community with the rest of us. If that means a few minutes each day walking home or in a bus, then great. If it means a few minutes a day talking to a taxi driver or, at the very minimum, watching a taxi driver earn a living, then that is better than nothing. But I’d rather they didn’t spend days at a time interacting with no one other than MPs and their own political minions.
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tvb (3,317) Says:
May 18th, 2009 at 5:48 pm
Basically the taxpayer should not be used to build up an asset for the MP either through a superfund or through ownership of the property. The should get an allowance for accomodation for ACTUAL nights spent in Wellington being an out of pocket expence. Building up an asset using this allowance or using it as some sort of super scheme should NOT be allowed.
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Grizz (244) Says:
May 18th, 2009 at 8:09 pm
I think parliament should provide MPs with apartments in Wellington. They Belong to Parliament therefore negating any living allowance expenses. Furthermore, there should only be a $6.50 fare subsidy to and from the airport, ie the cost of the airporter express bus.
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dimmocrazy (286) Says:
May 18th, 2009 at 8:17 pm
Best way to deal with all this is sunshine. Apart from the brilliant suggestions like an MP apartment building, the whole expenses and salary system should be public and online. One should be able to check precisely what each and every public servant is being paid and compensated and what for. We would probably find out that the people we consider the most important get paid the least and vice versa
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lilman (387) Says:
May 18th, 2009 at 8:27 pm
All I can think of is that bastian of political vigor JOHNATHAN HUNT.
I ever there was a more dispicable example of a MP ripping off the taxpayer its that farce.

Talk about a pig in a trough, pity we didnt see that Pig on SUNDAY last night.
A complete waste of my money and the worlds space.
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PaulL (5,198) Says:
May 18th, 2009 at 9:49 pm
Hmm. In theory it is ripping us off. But, in reality, we’re paying a maximum of $24K per annum for them to live away from home. If they choose to live in a slightly less flash apartment, and pocket the difference (which is effectively what DPF describes), I’m not sure I care.

The company I work for used to have rules that were aimed at making sure nobody profited from living away from home. Expenses were supposed to be recompense for actual out of pocket. We used to stick our noses into whether someone had a partner (and, if so, were they married or de facto), whether they had children, whether they had a mortgage or not in their home location, what sort of accommodation they lived in, how it was furnished. Because our expense policy required all these things. It annoyed the staff (it feels like penny pinching) and cost an enormous amount in administration.

We shifted to a bulk funding model – you get $200 a night for every night away from home. Spend it how you like, or don’t spend it, we don’t care. You can’t exactly get rich on it, and the reality remains that you are away from home. If you impose on friends or family so you can save some of it then that’s your problem. If you live cheaply to save some of it, then good on you. If you live expensively, not our problem.

The main problem with DPF’s scenario isn’t that it happens, it’s that the rules pretend that it doesn’t happen.

As for the Greens – I say good on them. Some of that money that turns up as return goes out as time – you don’t have a management agency because you do your own repairs – you trade time for money. You make a better return because you have good tenants – but that means you have to be a good tenant. You get a margin from living in a cheaper apartment – but you put up with that cheaper apartment without whinging.
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david (2,305) Says:
May 19th, 2009 at 9:41 am
Who was the maths genius that dreamed up this condition?

“(iii) other private accommodation

This is where the MP stays in a private residence not owned by them – probably owned by a friend. They can claim up to $50 a night, up to a maximum of $24,000 a year.

In this case the MP gains no benefit, but the home owner can benefit, and they may be related to the MP. Having said that I am not sure if any MP uses this option.”

FFS, 365 days/nights @$50 = $18,250. One struggles to see the point of a $24,000 cap.

[DPF: The $24K gap is for all forms of accommodation. So one might spend 100 days in a hotel and 50 days privately]
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