Unions have described the Government's 25c--an hour lift to the minimum wage as "miserly" and making a mockery of the Government's vow to "catch up with Australia".

However, Labour Minister Kate Wilkinson said the increase in line with inflation was the best the Government could do as it did not want to discourage job growth.

The rise is smaller than last year's 50c increase, but Ms Wilkinson said that too was in line with inflation at the time.

The advice her officials gave was that an increase to $13.10 - in line with the average wage increase - would have resulted in 400 to 900 fewer new jobs. A leap to $15 - the level proposed by Labour, the Green Party and Maori Party - would have cost between 5400 and 8100 new jobs and "did not have much of a rational basis".

Many business groups had lobbied her for a nil increase and some had called for a cut - something she said was not an option.

She believed 25c was a balance between maintaining a fair wage and ensuring bosses were not put off taking on new staff.

However, the Council of Trade Unions national secretary Helen Kelly said it was mean. "If this is the rate at which we intend to catch up with Australian wages, then we will never get there."

Increasing the minimum wage would benefit about 100,000 workers as well as their families. It would also have a flow-on effect to workers who were slightly higher paid.

The increase was welcomed as "probably reasonable" by Business NZ chief executive Phil O'Reilly.

However, he said if there was a policy of raising the minimum wage annually, the Government needed to remember there was a limit to what businesses could bear. A high minimum wage could also put employers off taking unskilled workers.

Labour employment spokesman Trevor Mallard said he was baffled at the Government's decision to restrict the increase to 25c, saying wage increases for the lowest paid were usually spent and stimulated the economy. He had expected at least 50c, which would equate to a 4 per cent increase.

"Two per cent is about where inflation is, but when you take into account the ACC levy increases people will be paying, they will be behind inflation."

He released a bill he has prepared which would lift the minimum wage to $15 an hour by 2011. However, it must be drawn out of the ballot for member's bills before it is introduced and then he has to secure enough support from MPs to pass it.

Service and Food Workers Union national secretary John Ryall said it was "demeaning" and would give cleaners - including those at Parliament - just an extra $10 a week.

He said he would ask Parliamentary Services later this week to increase its cleaners rates to "a liveable wage".

- ADDITIONAL REPORTING: NZPA