Instead, when the minimum wage is lifted on the first of April, it willgo up by 1.5% to $23.50 an hour. That increase was part of a compromise around the Cabinet table; Workplace Relations and Safety Minister Brooke van Velden suggested an even smaller, 1% hike to $23.40 - 40 cents an hour below MBIE’s recommendation.
In her response to MBIE’s advice, van Velden noted that the adult minimum wage has risen much faster than the average wage or the general inflation rate since 2001, meaning that over the long term people on the minimum wage have seen their real wages increase, rather than decrease.
Labour’s Workplace Relations and Safety spokeswoman Camilla Belich said it was the second time the Government had opted for a minimum wage increase that was below the inflation rate, and below officials’ recommendation, meaning that since the Government had taken office, people on the minimum wage had seen their real incomes go backwards.
She added it was also the second time that van Velden had proposed a much lower minimum wage recommendation, only to have it overruled by Cabinet - for 2024’s review, she recommended an increase of 1.3%, compared to an MBIE recommendation of 4% - Cabinet eventually opted for 2%.
“This is clearly a minister who has her own views separate to what, what might be considered reasonable by Cabinet or by MBIE.
“In relation to minimum wage workers, this has led to effective wage cuts at a time of the high cost of living,” Belich said.
The advice was draw up last year as part of annual adjustments to the minimum wage. Under New Zealand’s minimum wage regime, established in 2012, ministers and officials look at raising the minimum wage by enough each year to protect the real incomes of low-paid workers from inflation while not raising the wage so high it leads to job losses.
MBIE officials reckoned a 2% hike would lead to less than 1000 job losses - the same number as a 1% hike. Officials believed that 159,900 people would have seen their wages rise under a 2% hike, costing employers $236 million.
Officials believed a 2% hike best met the objective of keeping pace with the cost of living, noting an NZIER forecast for annual CPI inflation being around 2.3% by March 2025.
MBIE reckoned the minimum wage could rise by 2.5%, giving workers 25 cents an hour more without having a significant impact on employment.
“MBIE’s estimates do not show any substantial restraint on employment resulting from an increase of 2.5% or less for 2025. However, it is an economic reality that more people would be affected by a 2.5% increase than any of the lower options,” officials said.
Since 2001, the adult minimum wage has gone up by 207%, rising far faster than the average wage, which is up 132% and inflation, measured by CPI, which is up by 80%.
This means that in real terms, people on the minimum wage have seen their real incomes rise and rise faster than those on the average wage.
Van Velden’s paper on the minimum wage said the “legacy of past minimum wage increases have outstripped average wage growth over the long and medium term”.
She expressed concern at the “compressed ... distribution of wages”, meaning that people on the minimum wage were earning incomes close to the average wage.
“New Zealand’s minimum wage, as a proportion of the median wage, is also high by international standards. The minimum wage was 70% of the median wage in June 2024, placing New Zealand as the sixth highest minimum wage out of 33 countries,” van Velden said in the paper.
New Zealand's minimum wage has risen faster than the average wage and the inflation rate. Graph / MBIE
In subsequent comments, van Velden did “not believe the general economic climate justifies going above” a 2% increase.
“In fact, there is a strong case for going below that level given concerns have shifted from out-of-control inflation to unemployment,” she said.
Van Velden said she was particularly concerned that a higher minimum wage would restrain hiring, especially the hiring of younger workers.
“The forecast for rising unemployment, particularly for youth, plus other domestic and global economic headwinds, highlights the need for caution in setting the 2025 minimum wage rates,” van Velden said.
Belich said New Zealand’s high minimum wage relative to the average wage was due to the fact that overall, wages were low in New Zealand.
“We know that New Zealand has lower wages than we would like, lower wages in Australia - that’s why our minimum wage workers comparatively have wages closer to, to the average wage or to the median wage,” she said.
Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the Press Gallery since 2018.
