The Victorian Coalition Government has introduced legislation into Parliament to limit pay rises for all State MPs to 2.5 per cent for 2012-13.
Premier Ted Baillieu said it was important during challenging economic times for elected representatives' remuneration to be consistent with community expectations.
"The Victorian Coalition Government will also end the historical link between state and federal Parliamentarians' pay," Mr Baillieu said.
By law, salaries of Victorian MPs have historically been linked to the salaries of federal Members of the House of Representatives.
The Gillard Government has decided that a significant pay rise will be awarded to Federal MPs.
Allowances paid to the Premier, Ministers and Parliamentarians will be fixed at their current rates for the next 12 months.
The Government will establish an independent review to assess alternative methods for determining the remuneration of Victorian Parliamentarians in the future.
New legislation will be required in due course.
The remuneration of senior public servants will also be set to a maximum increase of 2.5 per cent for the next twelve months.
In addition the Secretary of the Department of Premier and Cabinet has been instructed to review the executive bonus scheme with a view to phasing it out for new and renewing contracts.
Instructions will be issued that where bonuses are paid strict attention should be shown to the need for restraint.