Minimum wage increase ignores the reality of life on the breadline - Craig Renney

New Zealand's minimum wage will increase from the start of April. Photo / Getty Images

OPINION

This week the Government increased the minimum wage by 2 per cent, to $23.15. Given that inflation is currently 4.7 per cent, this is likely to mean a real-term cut in incomes in April.

That’s real money being taken out of the pockets of some of the poorest, yet hardest working, New Zealanders. If the minimum wage increase had kept pace with the current rate of inflation, it would have increased by an additional $1274 a year - or an extra $24.52 a week.

That cut to the minimum wage, in real terms, is double the value of the tax cut proposed by National in Opposition - meaning that even if all of the income tax changes happen (which right now is a huge if) workers will be worse off. And that’s before the extra costs of paying for prescriptions or the doubling of public transport fares. Real wages for minimum wage workers will have fallen by nearly 3 per cent since 2022. “Putting more money in the pockets of hard-working families is a priority of this Coalition Government,” said Prime Minister Christopher Luxon in early December. This evidence shows otherwise.

Much has been made of the fact that the minimum wage in New Zealand is high by international standards. Our nearest neighbour Australia also has a minimum wage, which is A$23.23 right now. It will increase again in June this year. That’s NZ$24.86 an hour at current exchange rates – or NZ$68.40 a week more for a full-time worker – NZ$3556 a year. Inflation and interest rates are also lower in Australia right now, as is unemployment at 3.8 per cent. Their higher minimum wage is clearly not causing problems?

One of the reasons why we have that high minimum wage is our high cost of living, particularly for those costs that can’t be avoided, like housing. MBIE data for the June 2023 quarter shows a minimum wage worker would need to pay 89 per cent of their take-home pay to cover the median rent, or 78 per cent for the cheapest 25 per cent of properties. Those earning the minimum wage would now work a little more than 29 hours a week just to pay the rent. Rent prices increased 4.5 per cent in the 12 months according to Stats NZ.

April 12. Illustration / Rod Emmerson

If the new Government plans to get the economy “back on track” at the expense of the lowest-paid workers in New Zealand, it should get a better plan. This is not “balance” as the government claims, it’s just the latest in a series of decisions that are impacting the poorest, most vulnerable New Zealanders. Welfare payments will now be rising with inflation rather than wages, which will take thousands of dollars from low-income families. Public services will be cut at a time of both rising need, and a rapidly increasing population.

If the plan is to save money, this minimum wage change fails that test. When families don’t get enough income from their work, they’re topped up with payments like the Family Tax Credit and Accommodation Supplement. Lifting the minimum wage by such a meagre amount means higher payments from the Government. As the MBIE advice to the minister explains “a minimum wage increase could lead to decreased spending as a result of lower entitlements being paid out due to higher abatement rates of welfare benefits and other social assistance”. It also notes possible higher KiwiSaver contributions, meaning workers have greater savings in the future. This decision saves some businesses a few dollars, by costing everyone else both now and in the long run.

In the aftermath of the election result, one commentator said that this was likely to be an ‘anti-woke’ Government. Right now, the government isn’t leading a war on ‘woke’, it’s instead prosecuting a war on the broke. A government committed to removing the last semblances of security from New Zealanders. Axing Fair Pay Agreements. Bringing back 90-day trials. The coalition agreements want to see workers lose the right to be called employees, even if that’s what they are. To bring back the right to end tenancies without reason. It wants to examine putting time limits on welfare payments to those under 25.

This real cut to the minimum wage is just another step on that path. But it’s a journey that we need not be on. We should keep investing in essential public services and close our infrastructure gap in areas like housing. We should make sure that welfare changes don’t push more children into poverty. We should set the minimum wage at the Living Wage, a level calculated by experts so that families can lead lives of decency. We should do better. You can help. Join us and sign the petition and tell the Government that we don’t want to build an economy on poverty wages. Let’s not travel down the road that this minimum wage creates. It’s simply a prescription for dividing New Zealand further.

Craig Renney is a policy director and chief economist at the New Zealand Council of Trade Unions (NZ CTU). He is also n the Labour Party’s policy council.