The Government's just-announced minimum wage increase could "bring the economy to a grinding halt", warns the Employers and Manufacturers Association.

Prime Minister-in-waiting Jacinda Ardern today committed to a minimum wage of $20 by 2021, which she said would start with a bump from $15.75 to $16.50 by April 2018, rising in steps after that.

"We are a low wage economy... New Zealanders deserve a wage they can live on," she said.

"It is no longer acceptable to try and expect families to survive on the minimum wage as it currently is."


Employers and Manufacturers Association (EMA) chief executive Kim Campbell said the initial increase was not much more than what a National-led Government would have implemented.

However, he saw the $20-an-hour target as too high and it meant New Zealand would have among the highest minimum wages in the world.

"The first step was well signalled... and it's not very responsible signalling it so well in advance because it sets up inflationary expectations," he said.

"You can already see a reflection of that in our exchange rate, which has gone down because overseas they can sees that New Zealand's costs are going up.

"Exporters are going to do a bit better but you'd have to do the sums to see how they land but it will all turn into an inflationary spiral which is a really good way to bring the economy to a grinding halt."

Campbell said businesses would be worried by what the cost increases would mean for them.

His comments are starkly contrasted by those of First Union, whose general secretary Robert Reid said in a statement the incoming Government acknowledged the huge economic pressure working people - especially low paid workers - had been facing for the last decade.

"Today marks a sea change. We now have a Government showing respect for working people."

The union was especially pleased to see the minimum wage will move to $20 per hour by 2021.


"Business leaders often say the main thing they need is certainty. This announcement gives them that certainty and now they need to start factoring in significant wage increases for all their workers over the next three years."

Reid added that the era of 2 per cent a year wage offers was over and employers would need to be looking at annual increases of about 8 per cent to stay at or ahead of minimum wage rises.

"Our reading of the coalition agreement on employment relations is that Labour's election policy remains either intact or is enhanced by NZ First and Greens policy."

Auckland Chamber of Commerce chief executive Michael Barnett said that the minimum wage rise was well signalled so should not be a surprise.

"What may be harder to manage will be the achievement of $20 by 2020 and the consequences. Will it put pressure on some SME's? Probably. But there is time to innovate and have technology play a better role or to have the market accept higher pricing on some products and services."

Barnett said a feasibility study of moving Ports of Auckland "was a good compromise".
However, he warned that the shift north would be a "costly move away from most clients as opposed to being in reasonable proximity to them".

He said the "elephant in the room" has to be infrastructure and funding.

"The funding model to date had delivered a shortage in housing and investment in a timely way for infrastructure ... driven by local Government has led to a deficit in investment and the regions in 'catch up' - it's time for central government to take control."

Truckers say road funding was now a lolly scramble

Road Transport Forum chief executive Ken Shirley said the agreement between Labour and the Greens directly threatened the integrity of the National Land Transport Fund.

"Prioritising use of the NLTF towards rail infrastructure, cycling and walking shows contempt for the user-pays integrity of the fund," said Shirley.

The fund was currently ring-fenced for roading projects and paid for by road users through petrol excise and road user charges.

"Unless Labour and the Greens have plans to start making rail users and cyclists contribute to the fund then this deal is a real kick in the teeth to motorists and the road transport industry," said Shirley

"The reason why trucking operators accept the high level of road user charges is due to the direct relationship the fund has to the provision and maintenance of our roading network. Using it as a slush fund to pay for other transport modes will breed a high level of resentment."

If the new Government wanted to expand the fund to other modes then it should investigate the feasibility of other modes contributing to it.

"For instance, there is no reason why KiwiRail and other rail users should not pay 'rail user charges' to maintain and develop the rail network. To do otherwise is cross-subsidisation."

The forum was also looking forward to future announcements regarding an alternative to the East-West Link now that the project has been cancelled by this deal.

"The congestion problem around Onehunga and Penrose won't just disappear," says Shirley.