The minimum wage will increase by 6 per cent from the start of April, a move welcomed by unions but which led to warnings that it will tip businesses hit by Covid restrictions under.
On Friday morning Workplace Relations and Safety Minister Michael Wood said the minimum wage would be hiked by $1.20 an hour to $21.20 from the start of April, while the starting-out and training minimum wage will increase from $16 to $16.96.
Both increases are exactly 6 per cent, marginally above the rate of consumer inflation, which hit a 31-year high in 2021.
"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," Wood said in a statement.
"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."
Within minutes of Wood's release, Council of Trade Unions (CTU) president Richard Wagstaff welcomed the news, saying it would mean workers' incomes were protected in real terms.
"The CTU believes that increases in the minimum wage are both essential and desirable. Unemployment is at record low levels," Wagstaff said.
"There has never been a better time to increase the minimum wage. Despite suggestions to the contrary, international and New Zealand evidence suggests that increasing the minimum wage does not increase unemployment."
Along with proposals for fair pay agreements and social income insurance, hiking the minimum wage was "another step in creating better working conditions for Workers in Aotearoa," Wagstaff said.
BusinessNZ chief executive Kirk Hope said employers - some of which were dealing with large falls in revenue due to Covid restrictions - had little time to prepare for the change.
"It's a big increase at short notice that businesses have had little time to prepare for - it's also a slap on the face for industries that are struggling and have had no support under red settings despite seeing their revenue fall significantly - in some cases by up to 80 per cent," Hope said.
Retail NZ chief executive Greg Harford said the hike "can't come at a worse time for retail businesses that are bruised and bleeding after two years of lockdowns and other Covid restrictions".
Harford said retailers were facing cost increase "from all directions" as well as dropping consumer confidence as Covid restrictions were increased.
"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."
National's finance spokesman Simon Bridges said the move was an acknowledgment from the Government of a "cost of living crisis".
"Despite this huge increase, those receiving it will be no better off than they were a year ago. And it's cold comfort to millions of other Kiwis who are also being hurt by cost of living pressure."
Late last year MBIE estimated a marginally larger increase (to $21.25) would increase inflation by around 0.12 per cent, with the move raising wages across New Zealand by $389 million over the year.
Act leader David Seymour said the advice showed MBIE believed an increase of the magnitude announced by Wood would constrain jobs growth by around 6400 jobs.
"This move will mean businesses raise their prices or close, and more people are out of work and on welfare for longer. We just can't afford that," Seymour said.