The Government has announced the minimum wage will rise in line with consumer inflation, from $20 to $21.20 an hour, from April 1.
At 6%, the increase is on par with the 5.9% annual rise in the Consumers Price Index in the December 2021 quarter. Inflation is expected to continue running hot through 2022.
The minimum wage rose by 5.8% last year, 6.8% in 2020, 7.3% in 2019, and 4.8% in 2018. Rises were lower - around the 3% mark - in the prior years when National was in government.
The increase will see a full-time minimum wage earner earn $848 a week (before tax) - $48 a week more than at present.
The starting-out and training minimum wage will also increase from $16 to $16.96 an hour.
Workplace Relations and Safety Minister Michael Wood said, “With the arrival of Omicron, we are once again calling on many of our frontline workers - such as cleaners, supermarket workers, and security guards - to keep the country running as the virus spreads and cases begin to increase. I think everyone agrees those contributing so much to our Covid response deserve a pay rise.
“Raising the minimum wage will directly benefit approximately 300,000 workers, and will help many households that have been most impacted by the effects of Covid.”
It’s worth noting those who contract to government departments (including cleaners, security guards and catering staff) are already required to be paid at least the living wage of $22.75 per hour.
MBIE wanted smaller raise
The minimum wage increase is above that which the Ministry of Business, Innovation and Employment (MBIE) suggested in November.
MBIE recommended a rise to $21, which aligned with the latest inflation figures available at the time, for the year to the September quarter.
MBIE said larger increases “may become unaffordable for some firms, particularly those in sectors most affected by lockdowns and with high numbers of minimum wage workers”.
“These sectors currently include hospitality (with 29.5% of workers on the minimum wage), retail (18.4%), administrative services (15.5%) and manufacturing (7.3%),” MBIE said.
“This risks vulnerable businesses ceasing trading or downsizing, which could increase unemployment and/or under-utilisation for lower-paid employees, particularly those people on or near the current minimum wage.”
Debate remains over relationship between wage rate and employment rate
MBIE said a minimum wage of $21.25 would reduce employment growth by 6,400 jobs, whereas a wage of $21 would restrain it by 3,900 jobs.
“Workers who are young, female, Māori, Pasifika, part-time employees, without formal qualifications, or working in the retail and hospitality industries are more likely to be paid at the minimum wage rate. These are also the groups who are most likely to experience job losses and reduced hours, although these are also the workers benefitting from less low-skilled migration,” MBIE said.
However, Council of Trade Union president Richard Wagstaff said, “International and New Zealand evidence suggests that increasing the minimum wage does not increase unemployment.”
Indeed, the unemployment rate has remined low while Labour has been in government, although Covid-19 and the enormous amount of government support provided to keep people employed has created a big distortion.
Wagstaff said, “Unemployment is at record low levels. Employers primary concern in surveys is their inability to access labour. There has never been a better time to increase the minimum wage…
"While we support this change, the CTU is disappointed that the government did not choose to increase the Minimum Wage to the Living Wage at this opportunity, as had been requested by a petition of thousands of front-line workers.”
Businesses unhappy
BusinessNZ said the planned 6% rise was a “slap in the face for struggling businesses”.
"It is a big increase to the minimum wage, at very short notice, that businesses have had little time to get ready for,” CEO Kirk Hope said.
"For those sectors that are struggling to stay alive, with no additional support under Red settings, the minimum wage increase is a cruel regulation that adds critically to the burden facing businesses in 2022.
"We call on the Government to increase support for businesses affected by this crushing compulsory increase to the minimum wage."
Both National and ACT criticised the size of the wage increase.
MBIE recommended the minimum wage rise to $21.40 in 2023 and $21.90 in 2024 - 2% annual increases.
109 Comments
The OCR will reach heights not seen in many years. Whoever is hoping that this is just temporary and that rates will come down again in the medium term are utterly delusional. Inflation is growing and embedding in the system - this simply means many years of high and increasing interest rates, until inflation is brought again under control.
I think there is an under appreciation of the deflationary impact of bringing a massive portion of the worlds population (China/India) into the “global economy”. People seem to mistakingly believed we entered a new “low inflation”, low rate, permanent paradigm, without understanding why (and why it may change)
As this trend dries up it will make it far harder to keep interest rates low.
fortunr,
You sound just like Chicken Little. I suggest you lie down in a dark room for a while.
More seriously, it is very easy to make wild predictions, but they are meaningless unless you provide some 'reasoned' arguments to support your case. You provide none. "The OCR will reach heights not seen in many years". Put a figure to it. Show why inflation is 'embedding' in the system as you assert.
Better still, go and lie in that darkened room.
No, there's still some way to go.
Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.
hum, they in denial on this double thing. I said home loan interest rate is double of Australia they said no. Some produce or goods double cost double in NZ, they say no also. So I think they having a hard time believing when the word 'double' is mentioned. Unfortunately it's reality in many things many parts of NZ. It is bloody expensive.
Even though it's just a 6% increase in minimum wage, it's going to cost double or more increase in cost of goods.
Exactly right. We are governed by a bunch of incompetent clowns. Automatic inflation-rate indexing of wages and benefits is the perfect recipe for the embedding of high inflation. This idiocy has been tried in many countries in the 70's, with a result of many years of high inflation and sky-high interest rates.
What do you mean by "necessities"? Supermarkets? Pharmacies? Any business that was open in level 4 lockdown?
Because for most of those businesses, wage costs are a small part of total costs and they have the sales turnover to be able to raise prices by a few cents across the board to cover the increase in costs.
Now hospitality will feel the pinch. But that's not a 'necessity'.
It's not only the inflation, but what this does to businesses, what good is a higher minimum wage if you can't find an employer?
And if the rationale is so people can afford the necessities then shouldn't we be raising the minimum wage by at least 20% then in line with property?
This is such crap, Government has now ignored the Treasury, Inland Revenue, and MBIE advice passing policy recently, this as a lawyer/politician in Wellington obviously knows better than whole institutions who specialize in those fields.
The greatest irony, the Government messaging to the anti-vaxxers is to ignore to any opinions other than the medical professionals as it's there field, while they blatantly disregard applying this logic to themselves when passing policy.
Hypocrites!
There's pretty good evidence now that higher minimum wages don't necessarily lead to lower employment. The recent Nobel prize winners in economics in part won it due to their economics natural experiments around minimum wages and employment (https://www.bbc.com/news/business-58870395).
Card also argued that immigration didn’t lower than wages of local workers, which is a popular view here. At the end of the day, it’s about the size of change and rate of change. Sure, increasing the minimum wage or immigration in and of itself isn’t going to change the labour market. But do it quickly, repeatedly and in large doses, there will be consequences.
Normally I'd agree, but the environment the minimum wage increase is occurring in is far removed from any prior historical examples/studies, also of note is these studies are looking at trends/data often from the US, a very different business environment to that of New Zealand.
We are more leveraged, have rising interest rates, suppression of economic activity in hospo, retail, services due to health fear, inflation (both imported and domestic), the US tightening while the Chinese are loosening, lower participation rates, the velocity of money have collapsed (while cash is more ubiquitous than ever), asset values are through the roof, credit tightening, and with employment definitions always changing (altering/nullifying the validity of economic theorems) , the list goes on.
In an environment where we have unprecedented actions, and reactions, and a history of sound economic logic backfiring, I would suggest the Government pick it's moves more wisely, and for damned sure listen to industry experts.
Ah right, this garbage again. Why don't people research these things before just saying them?
According to Stats NZ, rents currently comprise about 9.9 per cent of the CPI, while the price of new housing makes up 9.1 per cent, so as it stands, housing costs comprise 19 per cent of the index.
Sure, you can argue that the CPI should be weighted more heavily towards housing. But you didn't. You claimed it does not include rents. It does.
https://www.stuff.co.nz/national/explained/127536512/can-we-trust-our-i…
Not a hard decision actually.
Perhaps the usual ones get a raise in June so that they get a month to enjoy their new found wage raise.
For those superstars, there's no question they will get the letter just in time before their first pay cheque comes in after April.
Everyone here up in arms, and with good reason.
But do any of you stop to think about the person actually on minimum wage? Doesn't seem like it.
I do not begrudge someone earning $20 per hour getting a pay rise. Christ knows they need it more than someone on 100k.
Unlikely.
We should be expecting more taxes to come- albeit in under other names.
She'd already warned us 2 years ago.
Jacinda Ardern isn’t ruling out tax increases in upcoming policy roll-out
Better prospects for continued employment/promotion, lower interest rates, a reasonable gradient in the pay between unskilled vs skilled employment to encourage aspiration that benefits the whole country - I could go on. I think it's a real worry how much the cost of living is increasing, and this obviously has a disproportionate effect on lower income folk; but increasing the minimum wage is another example of easy, short-term policy from a government that seems to create more problems than it solves.
Very true. I would say the best thing this government could have done would be to have addressed housing and bought rents down.
our minimum wage isn’t too low, it’s the cost of living that is the problem. Our low income earners have the highest levels of rental stress anywhere in the OECD.
rjn 1,
How very thoughtful of you to be thinking of "what's best for them in the long run". I suggest you discuss this with a few of them face to face and see their reaction.
I think mine would be to tell you to stick your concern for my long-term future where the sun don't shine.
How about also removing the taxes for minimum wage earnings? So the government wants the business to pay more to the workers so government can also take more in taxes.
So they are not really helping the people on minimum wage, they are really helping themselves by filling up their tax coffers from these 300k workers. The real help will be when anyone earning only minimum wage per hour should have to pay no tax. The ones who are earning six figures should pay more, so the balance is maintained. The politicians and bureaucracy should be taxed at 50% flat.
Politicians and bureaucracy already are parasites sucking blood of common people, why do they need more money?
Wow - our Nurses who carry degree qualifications and are the tip of the Covid Response spear were just declined inflationary pay rises. Maybe we will just adopt there UK's strategy of standing out in the street and clapping since they aren't getting any monetary reward. Absolutely tone deaf Jacinda.
Next the Australian bubble will facilitate many of our new grads to get much better conditions over the ditch, and this is a Labour Government - bravo!
A full tank in my car costed about 120 a year or so ago and now it costs 170, of course, she still goes the same miles. No one can dispute the reality, so I support the increase. You've got to raise people’s pay as much as the cost of living increases, otherwise, they go backwards.
This is a tacit admission by the government that prices aren’t coming down or going back, so here’s a few extra bucks for you folks at the bottom rung.
Don’t complain when we ask for your vote, we’ve given you a “whopping” raise.
Na you're lying, that is a 42% increase.
Inflation sitting at around 6% so that $120 fill is now costing you $127.2 right?
Goes to show how meaningless their numbers are. In the real world on a day to day basis is where it counts and it is a lot worse than the numbers they publish.
Inflation of 6% is across all goods and services in the economy. Individual goods and services will differ by different amounts.
Fuel price inflation directly contributes to inflation in the majority of the rest of the economy, so it is not surprising that fuel price inflation specifically is much higher than 6%, because that's how maths works.
The CPI is just a basket of goods. Each individual has their own basket of goods so infaltion is a vector, and is different for everyone.
So Yes, a poor person on min wage who works several jobs and has to drive between them would have an inflation rate up closer to the inflaion rate of fuel, as that would be a larger good in their basket. Jsut as rent would probably be about half.
That is why the CPI number is a load of shit, they just change what goods they put in the basket, or replace it with "an equivalant" that is cheaper.
I'm a little bemused by some comments in response to the minimum wage increase.
On one hand I hear much talk about labour shortages. And now I hear that businesses may go out of business because of this increase.
For those screaming out for workers, might it not be a good thing to have an increased pool of people to fill vacancies?
And what about efficiency of capital? Profitable businesses will probably continue to be profitable. Those on a knife edge.... well what's happening now is nothing new.
Have I got it wrong when I believe employers paying above minimum wage don't have their remuneration systems indexed to the minimum wage?
Problem there is, they probably are, or were, profitable in a free market. But now that the government has come in and screwd them over with capacity limits and completely changed the rule book, they no longer are....Hence the number of small businessses going out the door, or getting close to.
Bit of perspective.
300,000 people benefit by $48 a week.
Just over $700m per year. Most returned to the economy rest is tax.
ASB just paid a dividend of $650m after profit rise of 23% none of which will return to the economy.
At least the 300,000 did some work for their pittance.
Why so much whinging about those at the bottom. Why not more emphasis on the parasites at the top.
For all the hand wringing about what this will do to inflation, why do we accept that the lowest paid be the ones the bear the brunt of controlling that inflation? If landlords, utilities, groceries, fuel providers will use this as an excuse to raise prices then the problem lies with those sectors as they're clearly abusing their market power to extract excess rents as a result.
In her autobiography “The horse has bolted” Frau Ardern comments “my time playing monopoly and working in a fish and chip shop proved an inadequate training ground to understand the complexities of the NZ economy.”
Voted Time Magazines most disappointing politician of the year.
What a joke, we are personally down in sales over 50 percent the last few weeks as all the council and government workers work from home and don't come into the CBD and all the scared sheeple who can afford to self isolate.
Now we have to pay a shop assistant $44096pa plus kiwisaver $1322.88 plus GST $6,812.84 (we have to pay GST on all our income and cannot deduct GST as a wage expense). We have to make a profit of $52,231pa per shop assistant to pay one minimum wage.
Then they get 28 days of it off work on full pay, 11 public holidays and untold sick days.
I don't know about other retailers but I am going to have to lay one worker off now and somehow just work harder to compensate. We cannot just keep increasing prices to make up for all these increased expenses.
Not missing it at all.
GST is not an expense for business full stop.
Businesses are GST neutral.
Customer pays $11.50.
$1.50 is GST for govt
$10 is income to pay costs plus profit.
GST is not income as it belongs to govt hence you do a GST return and that $1.50, minus GST paid on purchases the business makes, is handed on to the IRD. It's a help to caseflow but never to income. Unless your ripping IRD of course.
Of course you can't claim GST on it, you don't pay GST to your employee's. You can't claim interest against GST either for exactly the same reason. I'll repeat, businesses are GST neutral, what comes in goes out again in exactly the same amount, it's a consumption tax not a business tax.
Of course you are right, and redcows ain't. Proper accounting for GST strips the GST fraction from all revenue except exempt sales, and treats it as a current liability. Because it doesn't belong to the business. Similarly, COGS and all other expenses except wages, salaries and associated levies, has the GST fraction stripped off and treated as a current asset. In a profitable business, and timing differences aside, GST liabilities exceed GST assets, so the business pays the difference to IRD or ATO.
Clearly seen in budgeting. Revenue is always GST exclusive, wages etc always at full quid, expenses other than exempt categories - interest etc - all GST exclusive.
So to employ that one extra at $X, all else held the same and ignoring employment levies like ACC, requires $(X+GST ruling rate) more revenue.....
Some real world budgeting experience is needed ........
Why do you need to claim GST on wages? GST is not a component of wages? You claim GST on other expenses because, shock horror, those expenses have GST built into them.
And the whole idea of claiming GST on expenses is because you end up paying GST on the sale of your finished product. E.g. you buy raw material for $10 which has $1.31 of GST, you sell finished product for $20 with GST of $2.61. If you didn't claim GST then the Government would have received $3.92 in GST on the finished product which is effectively a 19.2% consumption tax to the consumer.
The tax that comes out of wages is not paid by you, it's paid by your employees out of the gross hourly wage you have chosen to pay them.
Like any business, as costs go up whether it be wages, materials, utilities, rent, you put up your prices. Now Retail Shop is claiming that he cannot put up prices and revenue is down 50%. That's tragic, but totally irrelevant there are winners and losers. There are plenty of viable businesses that can put up their prices.
Retail Shop is complaining that he cannot claim GST on wages from the Government, is he paying his shop assistant an hourly wage + GST?
(we have to pay GST on all our income and cannot deduct GST as a wage expense)
Retail shop collects GST from the consumer, and passes it on to the Government.
While you're technically correct, Redcows, I feel like you're also missing a point: every small business, accountant etc is effectively acting, without remuneration from them, as a tax collector for the government and absorbing the administrative cost that comes with it.
THAT is the real hidden cost of GST. The costs of complying and collecting it are born by businesses who still need to pay staff wages out of their own pocket. The wage subsidy was the same - the Government just sent people money, but there was an enormous cost in terms of time to ensure compliance and keep records of it for staff.
Have those accountancy/administrative cost not been something that has existed since the beginning of tax compliance? Why are you calling it a hidden cost? Do you have an axe to grind or something?
I think you're also overcomplicating things. How hard is it to calculate "15% of total sell price of goods"? Isn't that why most businesses have a daily ledger? It's not rocket science. Do you also invoice the Government for your time to calculate and submit PAYE?
Maybe yourself and Retail Shop are not cut out for being business owners, it's okay nobody is judging.
Government should just start building house’s bring down rents.Interest rates going higher will cut prices quite quickly maybe as speculators and investors see their portfolio sinking the government can buy developments off them at a minimum amount to stop the bankruptcy and just rent them out at low rates bring down rent prices.
Good for those on minimum wage. I started out working in the 80s on youth rates which was a percentage of the 'adult' wage but I was doing as good a job as those older than me. It was tough to save on. This will give those workers some incentive and encouragement.
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