'Kick in the guts for businesses': Minimum wage to rise to $21.20

Friday, 11 February 2022

New Zealanders pay less tax on their wages than most in the OECD.

The minimum wage will rise to $21.20 an hour from April 1 but business representatives say it’s a “kick in the guts” for struggling firms.

The minimum wage is currently set at $20. The 6 per cent increase is just above the annual rate of inflation recorded in the December quarter.

The Ministry of Business, Innovation and Employment (MBIE) said there were about 160,600 people aged 16 to 64 paid the minimum wage in 2021, or 7.8 per cent of all wage earners. That is compared to 3.5 per cent on the minimum wage in 2018.

“Many Kiwis who earn the minimum wage have gone above and beyond in our fight against Covid-19. We remain committed to supporting New Zealanders by raising their wages, as we continue to recover and rebuild from the pandemic,” Workplace Relations and Safety Minister Michael Wood said.

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“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. For someone working a 40-hour week on the minimum wage, this increase will see them earning an extra $48 a week, and almost $2500 more each year.”

Wood said the increase would have a stimulatory effect on the economy because workers would spend the money on buying things, which would help support businesses.

The starting out and training minimum wage will increase from $16 to $16.96. The Government has been steadily lifting the minimum wage, from $14.75 in April 2017.

The living wage, a measure designed to indicate the level of pay required to live a full life, lifted to $22.75 in September last year.

Employers and Manufacturers Association (EMA) chief executive Brett O’Riley said the Government seemed intent on increasing the minimum wage to match the living wage by the next election.

But he said the announcement was a “kick in the guts” for many businesses, and ironic given that this week business groups had been discussing with Treasury what extra support there might be available for sectors struggling in the red setting.

“Many businesses are already on their knees, facing the impact of Covid, including disrupted global supply chains, inability to find skilled workers, rampant inflation… now they’re going to stoke the fire with this 6 per cent increase.”

He said his organisation believed the increase was likely to shut people out of work rather than result in more people earning more. “The callousness of this to small businesses beggars belief. This is just another body blow, a slap in the face. We know that businesses are already on their knees, is this designed to flatten them?”

He said, if the Government wanted to do something about rising costs, there were other ways to alleviate the pressure.

BusinessNZ chief executive Kirk Hope agreed businesses were “under extreme pressure” from fast rising costs in labour, capital, and in their supply chains.

'It is a big increase to the minimum wage, at very short notice, that businesses have had little time to get ready for.

'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.'

But Annie Newman, from the E tū union, said the increase would benefit the country’s lowest-paid workers, including many essential workers who were providing vital services during the ongoing Covid crisis.

It was great to see the minimum wage had gone up in line with inflation, she said.

“It recognises that we need to pay workers properly for the work they do. Essential work shouldn’t be, and doesn’t need to be, poorly paid.”

The union would continue to push for the minimum wage rate to be brought into line with the living wage rate of $22.75, which should be the minimum wage floor for all workers, she said.

“And to create truly decent working environments for all New Zealanders, we need to go further. Implementing fair pay agreements, along with a social unemployment insurance scheme, will lift working conditions to a standard not seen for decades.”

MBIE modelling showed that a minimum wage of $21.25 would have a restraint on employment of 3900 people. That does not mean that 3900 would lose their jobs, rather that there would be 3900 fewer jobs than would otherwise be the case, including new jobs that could have been created.

MBIE said as the minimum wage rose, it crept closer to the median which meant that increases affected a larger number of people.

It said that a rate of $21 an hour would affect about 230,300 people– including those on the minimum wage and those who are earning above the minimum but below the new minimum. The increase cost businesses $278 million.

But an increase to $21.25 would affect 300,700 people and cost $389m.

”With the larger increases to the minimum wage above $21, the total wage costs for employers may become unaffordable for some firms, particularly those in sectors most affected by lockdowns and with high numbers of minimum wage workers.”

It said hospitality had 29.5 per cent of its workforce on the minimum wage, while retail had 18.4 per cent, administrative services 15.5 per cent and manufacturing 7.3 per cent.

“This risks vulnerable businesses ceasing trading or downsizing, which could increase unemployment and/or underutilisation for lower-paid employees, particularly those people on or near the current minimum wage.

A poll of Retail NZ members showed 84 per cent disapproved of the increase.

Retail NZ chief executive Greg Harford said it could not have come at a worse time.

“The retail sector is facing huge cost increases from all directions, and has seen a significant drop off in customer confidence in recent weeks as the red traffic light settings have come into play. Retail NZ has repeatedly asked Government to postpone any further increase in the Minimum Wage, and we are disappointed that the Government is not listening.”