Politician Salaries: You Get What You Pay For

Commentary, Public Sector, Steve Lafleur

This year’s federal budget included a 1.6 percent salary increase for MPs. Backbench MPs will now make $160,200, with salaries for cabinet ministers and party leaders topping out at $320,000 for the Prime Minister. As always, this pay increase sparked populist outrage. That reaction is understandable. The base salary for MPs is more than double the Canadian median household income. Given the pervasive sense that parliament is dysfunctional, it’s no surprise that many people are upset to see their MPs get a raise. However, emotion should not form the basis of public policy decisions. Evidence from around the world suggests that, in fact, high salaries for politicians results in more qualified candidates seeking office, and better fiscal performance. Whether you’re hiring a lawyer, a corporate CEO, or an NHL defensemen, higher salaries tend to draw better candidates. MPs are charged with overseeing a nearly $300 billion organization. A $2500 raise is a small price to pay for good governance.

People generally support the idea of merit pay for most professions. If an accountant is able to file an above average number of tax returns, he’ll make more money. An exceptionally talented artist’s work will fetch high prices. A mechanic who fixes high end cars might make significantly more than one who patches up older cars. These are realities that most people are fine with. But people understandably become cynical when they hear about people earning much larger salaries than themselves, or anyone they know. Many instinctually believe that only the vilest of people would require such exorbitant salaries to do what may seem like easy jobs. Of course, being a Wall Street broker or the CEO of a large corporation is not easy. These require skillsets that few people have. One might argue that this logic doesn’t apply to MPs, since they really don’t do very much other than parrot party lines. To an extent, that is true. Centralization of power in leader’s offices has significantly diminished the role of MPs. Nevertheless, it is in the best interest of Canadians to have the highest quality elected representatives possible. Moreover, we want to make sure they have the right incentives.

Several studies have given reason to believe that high paid politicians lead to better policy outcomes. A 2009 study of Italian mayors found that “better paid politicians reduce the size of the municipal government. In particular, they lower taxes and tariffs per capita (by about 13% and 86%, respectively) and reduce the amount of personnel and other current expenditures (by about 11% and 22%, respectively).” Similarly, a 2004 study found that American a 4.5 percent salary increase for governors is correlated with a 10 percent increase in per capita state income. While these studies deal with political executives, studies of municipal politicians in Brazil and Finland have shown that higher salaries attract more educated candidates. While that is an imperfect proxy for good governance, it demonstrates that higher salaries are an effective way of expanding the pool of potential MPs, which is intrinsically good. A reasonable compensation system should not dissuade highly educated people from seeking office.

Some people worry generous salaries might lead to poor quality MPs continuing to seek re-election, since their private sector salary expectations would be lower. This is likely the case for some. However, consider the converse. If salaries are too low, highly skilled MPs would be more likely to leave prematurely. Citizens would not only be deprived of effective legislators, but a number of them work their way into high paid positions in the lobbying world. That is hardly conducive to good government.  Many others would more benignly retreat to the legal world, from which they emerged. Like judges, MPs should be highly compensated to avoid the situation where they leverage their positions to seek compensation through other avenues.
There are many things to dislike about the most recent federal budget. Spending is up, as always, and the government is still running a deficit. A $2500 raise for federal MPs is a drop in the bucket. The federal government faces much bigger fiscal challenges. We should be willing to pay whatever it takes to ensure prudent fiscal stewardship, even if that means grudgingly giving politicians raises.