The increase will take effect from 1 April this year. Photo: 123RF
The minimum wage is set to increase by $1.50 an hour with the government saying the impact on inflation will be "negligible".
Prime Minister Chris Hipkins has announced the move to a new rate of $22.70 per hour from 1 April as part of a raft of changes as the government resets its agenda heading into the general election in October.
The Starting-Out and Training minimum wage rates will be maintained at 80 percent of the adult minimum wage.
"I do understand that a number of small businesses will have concerns about this decision, however in a cost of living crisis we can't leave those on the lowest incomes behind," Hipkins said at his post-Cabinet media briefing.
"An inflation-adjusted lift to the minimum wage will mean that thousands of New Zealanders don't go backwards."
He said past experiences with minimum wage increases showed people were unlikely to lose their jobs as a result.
"Those concerns have been raised every time the minimum wage has been increased and we've got record low unemployment."
Chris Hipkins says he is honouring a commitment he gave when he became prime minister. Photo: RNZ / Angus Dreaver
Hipkins said when first taking over the role he had promised to do more to help families cope with the cost of living.
"I am concerned for those in our communities who are feeling the greatest financial pain at this time and that includes those on the minimum wage.
"They make impossible trade-offs between food and medical care, dry homes, clothing for their children. These families need our support now more than ever."
In a statement before the briefing the prime minister said the inflation-adjusted lift in the minimum wage "will means thousands of New Zealanders do not go backwards".
The government was conscious of the need to find the right balance, however, it was unlikely the $1.50 an hour increase would complicate the battle to get on top of inflation.
"The impact on inflation is negligible. In the 2022 Review, MBIE estimates that an increase of 7 percent in the minimum wage will have only a minor inflationary impact of 0.1 percent on the wages portion of GDP," Hipkins said.
In its sweeping policy reset, the government has scrapped plans for the RNZ-TVNZ merger and pushed back work on hate speech and its social insurance scheme. The biofuels mandate has been halted and changes to the Three Waters programme will be considered.