The new Government announced there would be an increase to the minimum wage in New Zealand taking it to $20 per hour by 2020.

Following the policy announcement, Prime Minister-designate Jacinda Ardern said the first increase would take the minimum wage to $16.50 in April 2018 and would rise in steps from there.

"We are a low wage economy ... New Zealanders deserve a wage they can live on ... it is no longer acceptable to try and expect families to survive on the minimum wage as it currently is," said Ms Ardern.

Chamber of Commerce chief executive Stan Gregec said businesses were "in for a bumpy ride" following the announcement of increasing the minimum wage.

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"From what we are hearing about the minimum wage going up, I think it's fair to say many business people, small and large, will have concerns."

Mr Gregec said increased wages would ultimately "have to be passed on as increased prices".

Tauranga Mayor Greg Brownless said he did not think the minimum wage increase would have a "major impact" for Tauranga residents but welcomed the increase.

"Anything to help people at the lower end of the pay scale would be a small help," he said.

National secretary of the union E tū Bill Newson said the extra money would be "very welcome" for minimum wage workers.

Mr Newson said the increase from $15.75 an hour to $16.50 would mean minimum wage workers would have more than $20 extra a week, after working a 40-hour week.