It recommended an increase of 4 percent to $23.60, which was expected to impact the earnings of about 164,400 workers, resulting in an economy-wide wage bill increase of $145 million.
The ministry said adopting this increase would be “prudent” because the cost of living crisis was likely to remain an issue and the labour market will be more sensitive to minimum wage increases compared to the past two years, as unemployment looks to be increasing.
But the Cabinet paper shows the Workplace Relations and Safety Minister, Brooke van Velden, had proposed and recommended that Cabinet adopt a 1.3 percent increase – a 30 cents difference on the current amount.
While she did provide “additional options” of a 2 percent increase – which was the one Cabinet agreed to – and a 2.7 percent increase, she made clear in the paper that the 1.3 percent option was the “recommended approach”.
The paper noted this would be “best response, given the current challenging economic environment and forecast for rising unemployment over the next two years, and the need to preserve job creation”.
“The Ministry of Social Development, Accident Compensation Corporation, New Zealand Defence Force, New Zealand Police and Health New Zealand Te Whatu Ora were identified as the agencies most likely to be affected by any change to the minimum wage rate.”
MBIE’s lowest increase scenario of 1.5 percent would also have made a difference of 30 cents (rounded down from 34 cents).
“Option 2 ($23.00, a 1.5 percent increase) is modelled to increase the wages for 79,400 employees, without having any impacts on employment. This option would produce negligible fiscal cost to government. It was included in the option set as it rounds up the current rate to the nearest dollar figure and demonstrates the potential impacts of a very small increase to the minimum wage.”
MBIE consulted with BusinessNZ and the New Zealand Council of Trade Unions (NZCTU) on the rate options considered in the minimum wage review.
Labour slams ‘pathetic increase’
Earlier during the announcement, van Velden criticised the former Labour government’s wage increases for being out of balance with inflation, adding that the increase for this year was “cautious”.
“This government is committed to striking the right balance between protecting the incomes of our lowest paid workers and maintaining labour market settings that encourage employment,” van Velden said.
But Labour workplace relations and safety spokesperson Camilla Belich said the “tiny” increase was not enough to help low income earners in a cost of living crisis.
“This pathetic increase is beyond disappointing. As the price of goods and services continue to climb, the coalition government has chosen to turn a blind eye to our most vulnerable income-earners by not increasing minimum wage to a level in line with inflation,” Belich said.
Belich said the coalition government “cruelly opted to go against” MBIE’s recommendation.
“Rises to the minimum wage so that it’s at least in line with inflation is essential. This drop in the bucket increase will only make it harder on New Zealanders who are struggling to put food on the table.”
Van Velden claimed the previous minimum wage increases had it made it tough for businesses to issue other pay rises, or hire more staff.
“Moderate annual increases to the minimum wage reflect this government’s commitment to growing the economy, boosting incomes and supporting job growth throughout New Zealand.”
BusinessNZ has welcomed the rise in the minimum wage, saying it took into account the economic conditions businesses were grappling with.
“Minimum wage increases coming too hard and too fast tend to impact very heavily on business, especially if they are unable to pass on their increased costs,” chief executive Kirk Hope said.
“Small businesses in particular will be relieved to see the moderation in this latest rise.
“The significant increases introduced since 2017 have brought the minimum wage very close to the level of the median wage, at significant stress to small businesses.”
BusinessNZ’s briefing to the incoming government called for minimum wage-setting to be moderate, stable and predictable.
Echoing that sentiment, Retail NZ chief executive Carolyn Young said they too asked the minister to restrain minimum wage increases to enable retailers to set a level that was more sustainable.
Their latest survey of members showed wage increases was one of the major concerns, so the news of a “cautious” rise came as a relief, Young said.
“We are pleased that minister van Velden has listened to us and recognised the pressures that retailers are under.”
The government also announced that training wages and starting wages will remain at 80 percent of the minimum wage rate, thereby increasing to $18.52.
The New Zealand Council of Trade Unions recommended abolishing the starting-out rate and the training rate, but MBIE said have a different rate may support youth in their early jobs.
“This supports the policy objective of incentivising employers to take a chance on a young person, enabling them to earn money, gain skills, and get work experience they need.”