A minimum wage increase of $1.20, 6 percent, bringing it to $21.20 per hour has been confirmed for 1 April by the government.
Photo: RNZ / Rebekah Parsons-King
The starting-out and training minimum wage will also increase from $16 to $16.96 per hour.
Workplace Relations and Safety Minister Michael Wood confirmed the moves in a statement this morning, saying it would directly benefit about 300,000 workers, and help many households most impacted by Covid-19.
"For someone working a 40-hour week on the minimum wage, this increase will see them earning an extra $48 a week, and almost $2500 more each year," he said.
He said the government was delivering on an election pledge with the increase, and remained committed to supporting employees and employers throughout the Omicron outbreak.
"The wage increase will also have a stimulatory effect on the economy as many workers will spend the extra money on goods and services, which in turn, will help support businesses," Wood said.
It comes after inflation hit its highest level in 30 years, with an annual rate of 5.9 percent for 2021 and an increase of 1.4 percent in the three months ended December.
Unemployment was at a record low of 3.2 percent for the three months ended December, while private sector wages grew an average 2.8 percent.
In September, the Living Wage - the rate at which someone would need to afford the necessities of life and participate as an active citizen - increased to $22.75.
Wood said the move struck the right balance between retaining the standard of living for low-wage workers and the needs of businesses.
"If we had a lower increase coming in or no increase as some business groups advised us we should do, that would mean our lowest income workers going backwards in terms of their standard of living.
"Every year we've increased the minimum wage and actually after doing that last year we've seen unemployment go down to a record low of 3.2 percent.
Opposition cries foul
In a statement, National Party Finance spokesperson Simon Bridges said the move was an admission by Labour that New Zealand had a cost of living crisis.
"It's no coincidence the increase is 6 percent - almost exactly the same as inflation over the last 12 months," he said.
"Despite this huge increase, those receiving it will be no better off than they were a year ago. And it's cold comfort to millions of other Kiwis who are also being hurt by cost of living pressure."
He said the move would be incredibly hard for many businesses who were already struggling.
"National knows that what New Zealanders need doesn't come from the flick of a pen on minimum wage but from an agenda to lift growth and productivity," he said.
He targeted Finance Minister Grant Robertson's spending.
"To deal with the cost of living crisis New Zealand now faces, he needs to rein in his new spending and focus on quality. But with an upcoming Budget where he is planning to increase permanent spending by a staggering $6 billion, the most ever, inflation and interest rates will remain higher for longer."
ACT leader David Seymour said the wage increase went against the advice of the Ministry of Business, Innovation and Employment (MBIE), which warned it would constrain employment growth.
"This move will mean businesses raise their prices or close, and more people are out of work and on welfare for longer. We just can't afford that.
He noted the government had also been warned by MBIE and Treasury any stimulatory effect on the economy was unlikely because of the relatively low proportion of minimum wage earners in New Zealand.
"Prices have gone up 5.9 percent. Wages have gone up just 2.6 percent. Kiwis can buy less with their money - they're getting poorer ... the only adequate response is a return to rational economics," he said.
The party's Small Business Spokesperson Chris Baillie said three of his 26 employees were on minimum wage, and the increase would be crippling for some businesses and could be the difference for some going under.
"We're still going through a hundred-year pandemic that the government keeps talking about and the only people who are really suffering from it are business owners who have to keep people employed - everyone else is just carrying on no problem.
He said the government was blaming its own mistakes on small businesses, which would be the solution to growing the economy.
"Why is inflation at 6 percent? I mean the government's got to look hard at themselves before they start putting their mistakes and blaming their mistakes on small business. I'd love to pay my staff $50 an hour but realistically a business has to earn money to be able to pay it."
"We just need to take a deep breath, consolidate with what we've got, start building businesses back up, become more productive and then conditions and wages will improve."
"We just can't keep on piling these extra costs on without expecting some kind of productivity."
Unions urge Living Wage and fair pay agreements
Council of Trade Unions president Richard Wagstaff however said unions had been hoping for more.
"I think the ACT party is ... on record for not supporting working people. They need to understand that businesses need workers and workers need to be properly paid for their labour and this is just keeping up with the cost of living so that's hardly too much to ask at a time like this."
"Particularly when inflation's running at the level that it is and we have people that are really struggling who are working - we have far to many working poor in New Zealand ... people who work hard can't make the rent, can't pay the bills and that's not acceptable, we need to arrange things so that doesn't happen."
He said unions had been hoping the government would act on a petition delivered that called for the minimum wage to be increased to the level of the Living Wage.
They were also looking forward to the government making moves to introduce fair pay agreements similar to those seen in Australia, "which will bring a much more sophisticated approach to setting basic conditions for industries, so that's got to be part of the answer too."
"It's good, but as I say, we'd be looking for more."
Minister Wood also said the evidence showed the wage increase would not affect unemployment, and rejected criticisms that Labour's economic management was responsible for rising inflation.
"It is challenging of course for a government to be able to impact those international supply chain factors - things like the cost of petrol, things like geopolitical disputes that are driving up costs, but we'll do what we can to make sure that Kiwi workers have got the wages to help them deal with that."
Businesses call for extra support
BusinessNZ chief executive Kirk Hope said businesses were under extreme pressure from rising costs, and they had very little time to get ready for "a big increase to the minimum wage, at very short notice".
"There are a lot of people who are struggling under Covid conditions but inflating prices by inflating labour costs is not the way out of this - that's a zero-sum game," he said.
He said he thought it was extremely difficult for businesses already facing a significant decline in revenue, particularly hospitality.
"I think there are a large number of business owners that are absolutely suffering, some of them would be paying themselves less than minimum wage, some of them will be struggling to hold onto their capital and their life savings."
"There were already in some sectors businesses that were having a hard time ... they'll be starting to make some decisions about what the future looks like and that's going to be devastating for that sector and many businesses."
He said there had been consultation, but the decision had come late and it left businesses six weeks to find in some cases 6 percent of additional revenue or to cut jobs.
With unemployment so low, some sectors were already paying significantly higher labour costs as well as higher capital costs and costs related to global supply chains.
The border opening would help, but sectors that could not fully operate under the red traffic light setting needed more support, he said including hospitality, retail and other support industries like taxi drivers.
"We call on the government to increase support for businesses affected by this crushing compulsory increase to the minimum wage," he said.
Auckland Chamber of Commerce chief executive Michael Barnett said it had no problem with the "good intentions" of the increase but the timing was bad.
"We all accept the aspirations to do better for workers but the timing is out of step with business reality and recognising so many enterprises are walking a precipitous path to stay solvent in this new period of heightened uncertainty," he said.
Retail NZ chief executive Greg Harford said a snap survey showed overwhelming opposition to the increase, which could cause higher prices, fewer jobs and store closures.
"Most businesses are not in position to absorb the cost increases ... will be looking to increase prices, reducing the hours available for employees to work, and will be looking at reducing the number of people employed," Harford said.
"A number of members are also considering closing stores, as their businesses become increasingly unviable on the back of minimum wage hikes, other compliance issues, Covid-19, and the government's proposals for national award bargaining."