The Coalition Government has agreed to increase the minimum wage to $23.15 in April, a 2% boost that's less than half the forecast rate of inflation for the year ending March.
National’s coalition agreement with New Zealand First committed to “moderate increases to the minimum wage every year” while the Act Party campaigned on freezing the minimum wage.
Cabinet's decision to increase the minimum wage less than inflation effectively lowers the base rate in inflation adjusted terms.
Minister for Workplace Relations, Brooke Van Velden said this was justified as the minimum wage has been increased much faster than average wages or inflation over the past 20 years.
She initially recommended a 1.3% increase to Cabinet, alongside a 2% and 2.7% option.
“I believe such a rate is appropriate given the current economic conditions and the historically large increases to the minimum wage (relative to inflation) that have distorted relativities”.
Van Velden’s Cabinet paper said the increase to the minimum wage should be compared to official inflation forecasts for the year ending December 2024 — of between 2.5% and 2.9%.
“Any increase to the minimum wage that is substantially higher than inflation risks increasing pressure on businesses that are already struggling in a cost of living crisis, and reducing employment opportunities in a softening labour market,” she said.
The Ministry of Business, Innovation and Employment recommended a 4% increase to $23.60, based on an assessment of inflation over the previous year and the relative gap between median wages.
In a 2023 review of the minimum wage, which informed the Cabinet decision, MBIE said the wage “would likely” need to be at $23.60 or higher to “approximately maintain the current real-value of the minimum wage”.
However, the gap between the minimum wage and the median wage has been getting smaller over the past two decades and particularly during the two terms of Labour-led governments.
“In the past two years, the minimum wage has increased by about the rate of inflation. Prior to that, there was a period of significant increases in the real value of the minimum wage,” MBIE said.
Austerity measure?
BusinessNZ, which was consulted on the decision, said no increase in the minimum wage would “effectively represent an austerity measure” for workers.
The advocacy group said it could support an increase that reflected the recent movements in the Consumer Price Index and Labour Cost Index.
Van Velden said a new minimum wage would be set every year but “not necessarily at the rate of inflation”.
“This is a cautious increase, noting that inflation is decreasing,” she told reporters.
MBIE also consulted the Council of Trade Unions which recommended an increase to the living wage, which would be $26 an hour.
Craig Renney, an economist at the union group, said the 2% increase was a cut in real terms.
“Taking money away from hundreds of thousands of workers during a cost of living crisis defies understanding, and is poor economics,” he said in a statement.
There was a $944 difference between what MBIE recommended and what the Government ultimately decided to do.
“These losses dwarf the tax changes that the government is proposing – meaning that workers will be worse off in real terms even after any tax package changes,” Renney said.
Fallen through the cracks
Brad Olsen, the principal economist at Infometrics, said minimum wage settings have generally not been set based on inflation over the past few years.
The Labour government had a policy of increasing the base rate in real terms to bring it closer to the living wage.
Olsen said if wages were being adjusted for inflation, that could be done relative to inflation that has already occurred or in anticipation of future inflation.
Either approach could be appropriate, but switching from the former to the latter would result in one year’s worth of inflation falling between the cracks.
Olsen said there wasn’t a settled principle for how minimum wages should be set and governments were just deciding based on the political and economic context.
“It would be good if there was a principle, but for now politicians are just choosing based on what suits them best,” he said.
It was reasonable for the Government to opt for a smaller increase this year, given there had been larger increases in previous years.
64 Comments
Interestingly enough, looks like Police too will have to do more with less money while still hoping to attract more people - unlikely - so we can fund tax cuts for property speculators.
Perhaps we need to start considering the weight of personal conflicts of interest in MPs having big multi-million dollar property investments, when they're favoured over adequate investment in police, health etc. and when election trail promises of no front line services being affected are also thrown on the scrap heap.
How relatively healthy are pay rises to the likes of officers, nurses and teachers during the oversight of governments that are less likely to reduce taxes?
And do they instead also raise tax brackets inline with inflation?
Or do they just shovel the extra tax revenue into a furnace?
Spiking rents? Any proof? Am I reading this chart wrong? https://www.stats.govt.nz/information-releases/rental-price-indexes-sep….
https://www.trademe.co.nz/c/property-industry/news/May-Rental-Price-Ind…
Or even look at the difference in increases between Feb and May last year
https://www.newshub.co.nz/home/money/2023/03/february-sees-record-high-…
https://aspireproperty.co.nz/rental-market-update-july-2023/
Or here: https://www.newshub.co.nz/home/money/2023/11/rental-price-index-aucklan…
"Rental prices have increased 4% since last year". Hardly a spike compared to everything else.
Nice spruiking headline too: "Rental Price Index: Auckland weekly rent reaches all-time high". Isn't an all time high a standard feature of inflation? Almost everything is at an all time high at all times.
Or we should roll back welfare subidies for rental yields and prices, tax advantages, and bailouts for property in hard times, while liberalising zoning.
The rental market doesn't actually need coddling of landlords and speculators to exist, as it predated such welfarism.
Here's an Interest article pointing out that landlord expenses do not drive rents. It's mostly what people can afford to pay and how much demand and supply there is.
https://www.interest.co.nz/property/93555/rodney-dickens-doubts-landlor…
Do they spend more on min wage increases than they get from tax revenue from min wage increases. I don't have an answer to that.
But you can't give min wage workers a decent pay increase and the "squeezed middle" a tax cut pay increase and expect inflation to drop.
If the government engaged in a disproportionate number of minimum wage workers over the general economy, then there would be more merit to a claim that tax cuts impeded minimum wage increases.
There's also a view that minimum wage increases get spent immediately on consumption (as opposed to being saved or invested), so potentially any minimum hike gets hit with 15 % GST straight back to the coffers.
To be honest the fact they've offered anything at all surprises me. It's not their core demographic and they usually are fixated on eliminating costs for businesses.
re ... "Do taxes pay for minimum wage increases?"
Not directly. Obviously. But a minimum wage increase below the rate of inflation means government pays more in benefits to lift these low wage earners incomes up so they can afford to live and bring up their children. That's how WWF, accommodation supplement, etc. work.
See, Pa1nter, you do learn something new every day. You're welcome.
WFF abatements would eat most increase to minimum wage earners, if they have children. That would still hold true if the increase was 4% or more. WFF abatements are a massive suck on productivity; why work more when facing an effective marginal tax rate of over 50%?
Meanwhile, the average New Zealand household expenses increased by 7.0% in the 12 months: https://www.interest.co.nz/personal-finance/126167/stats-nz-says-its-ho…
However I do think it is right to only increase min wage by 2% if that is the RBNZ target (although that needs to work both ways).
https://www.stuff.co.nz/business/350165587/minimum-wage-rise-2315-despi… “The economic context has changed significantly over the past year. While unemployment is currently low, the labour market is softening due to high net migration rates, constrained consumer spending and subdued economic growth. Given these economic headwinds, a cautious approach to the minimum wage is required this year.”
If high net migration rates is an economic headwind, surely there is a cure?
As a business though, minimum wage workers aren't as appealing a clientele for a landlord as someone on an average wage, for many reasons.
Depends. The ROI / ROE (effort) on a successful backpacker operation can be just as good as a 5-star hotel like the Ritz Carlton.
Landlording, houselording. whatever you want to call it is not a business. Sit back and do nothing while the tenant pays your debts.
Just a smaller version of fiefdom, same as it ever was.
Under the feudal system, a fief was a piece of land. This is short for fiefdom. Words that go along with fief are vassal and feudal lord; the lord (kind of like our landlords) owned the fief and the vassal was subject to all of his rules. If you were the lord of a fief, your tenant was your servant.
Only works if you are hiring them at scale.
Although for every 6 or so, you have to hire someone to supervise them.
I tend to view employment though as a service, where you are paying your employer a fee to do the sales, marketing, financing, and capital investment on your behalf. Unless you have a lot of leverage via unique skills and attributes, pretty hard to do well in such an arrangement, you're not risking anything.
Actually a lot of minimum wage roles need years of higher education and training before they can get employment. Fields like healthcare and tech. We are in such demand for people in these roles that we often hire anybody from overseas because we literally cannot train enough (I guess the years of debt from training and low wages are just not attractive incentives).
Essential workers were just people you like to abuse right?
Actually a lot of minimum wage roles need years of higher education and training before they can get employment
We are in such demand for people in these roles that we often hire anybody from overseas because we literally cannot train enough
If true (which I doubt), then they're not the smartest people because they could have spent those years of higher education and training in a high paying industry instead.
Ridiculous. Minimum wage is there for a reason as a base, if people arent happy then they ought to educate and better themselves in seeking better employment and if there aren’t staff to do the jobs then the market will set the pay rate. Every time they increase it there are unintended consequences that eat into the middle income earners and devalue their work. We have one of the highest minimum wages in the OECD for a decade now. Time for the govt to step back
We will still need nurses who are being paid on minimum wage (and funded below that) but we need less financial advisors so even if a nurse retrains as a financial advisor they would be unlikely to get a job in the role and the sick and elderly they were caring for could starve & die of sepsis without high trained nursing care.
Try to remember that when you go to abuse your nursing staff in the retirement home.
We will still need nurses who are being paid on minimum wage (and funded below that)
I don't see why you keep trying to mislead people about this. A graduate RN after completing their three year degree course starts on just under $75,000 pa. Anyone can google this as a fact.
A lot of minimum wagers might actually be students putting themselves through further education and "bettering" themselves. Some may not have the ability, aspiration, and intelligence depending on their background, values, and ideals and are content with "getting by", living a basic life. Some may be older and can't find decent employment in their skill field or maybe just want to be out doing something productive, being amongst people, topping up their superannuation. If already employed minimum wage earners received inflation adjusted wages why shouldn't the minimum wage also adjust accordingly? Why should any of them be exploited by "the market"? Why shouldn't they be paid a decent wage even if they're at the bottom of the heap? Essential workers until they're not.
The market and economic theory literally demands having unemployed and minimum wage workers fighting against each for jobs so as to keep wages down. None of this eats into or devalues middle income earners. The problem there might be middle income earners not bettering themselves and believing that because someone below them got a pay increase then they're "entitled" to more.
The real question is why aren't we willing to discuss maximum wages? There's a bunch being paid more than they're worth and it only comes from the productivity of the workers.
But i guess you might be one of those that demands cheap goods and doesn't care if slave labour produced it or other unintended consequences. Sounds like there's many who could be bettering themselves by taking off the selfish entitlement greed blinkers and developing more understanding and compassion for their fellow human, both present and yet to be born.
If already employed minimum wage earners received inflation adjusted wages why shouldn't the minimum wage also adjust accordingly?
The Minimum wage has increased much higher than inflation over recent years. Why should NZ have one of the highest minimum wages in the world? It's absurd.
The logic is that you get paid based on scarcity. People don’t get paid more because they produce more or for their skill sets, they get paid more because there are relatively few people who can do what they do. The more scarcity, the higher the pay.
The problem for people in jobs with low barriers to entry is that we say you get paid less because lots of people can do your job. And if there is ever a lack of people that might drive up wages, we bring in lots of unskilled labour from overseas to push those rates right down.
It means that you can be the hardest working supermarket worker but society will never let a scarcity of labour exist so that your wages can rise.
Just a thought exercise to consider whats involved with a minimum wage job, vs what you can buy with the proceeds.
Obviously we have expenses greater than eggs, and you likely won't generate much of a surplus on minimum wage, but it's interesting to consider the imbalance between input and what you can do with the output.
Not really the chickens just poop them out and they are the ones doing the "work" (eating and shitting eggs). Pushing trolleys is much harder than that, it actually involves effort beyond eating and pooping, and can cause severe back and knee injuries that are disabling. If you never ever had a job doing physical labor I can understand your lack of education and knowledge on what it involves. Likewise it sounds like you don't know how eggs are made.
I say this as a person who has owned and managed a flock of chickens that were decent layers to the numbers required and also having detailed inside knowledge of large scale commercial chicken farm that literally has few workers doing mostly relaxed work that involves less physical labor than a single hour pushing trolleys. The hardest work was getting the generator & fans fixed and clearing a bird blockage (birds sitting in the space). That involved little physical effort, certainly not as much as pushing even 3 trolleys across a carpark.
Protip: the average nz household comprises more than 1 person and it can be made up of multiple minimum wage earners. E.g. if it was recent migrants or students they can have more than 4 wage earners to a household and have below minimum wage income.
But congrats on a basic mathematics mistake. Using the average instead of a median & assuming a household equates to a single person. Its almost like they do not teach maths and stats anymore.
Try looking up the median wage for NZ, then looking at the spread to see how much of the population is on and near minimum wage. In healthcare, many nurses (a huge sector considering aged care & support work) are on minimum wage or only slightly above. But add in uniform and transport costs and that metric is much worse. The administrators get paid more and can be unskilled compared to the years of training the nurses need.
We will still need nurses but we need less financial advisors so even if a nurse retrains as a financial advisor they would be unlikely to get a job in the role and the sick and elderly they were caring for could starve & die of sepsis without high trained nursing care.
In healthcare, many nurses (a huge sector considering aged care & support work) are on minimum wage or only slightly above.
Starting salary for a graduate RN after a three year degree course is just under $75,000pa for a 40 hour week. So no idea what you are going on about here or what you think your misdirection is going to achieve.
Any wage increase is an increase, regardless of inflation. Name one thing that has increased with inflation in recent times?
I tell my kids thats why you need try hard at school so you can get a good job. The other alternative is try hard at work, and you wont be on a minimum wage for long.
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