The Government will increase the minimum wage by 2% from April next year.
Workplace Relations Minister Brooke van Velden announced the hourly wage would move from the current $23.50 to $23.95 in line with advice from the Ministry of Business, Innovation and Employment (MBIE).
“Moderate” increases of the minimum wage formed part of NZ First’s coalition agreement with National.
Van Velden said the new rate, which would affect about 122,500 New Zealand workers, struck the right balance between keeping up with the cost of living – the Reserve Bank expects inflation to fall to about 2% by mid-2026 – and not adding more pressure to the costs of running a business.
However, Labour says with the surge in prices for essentials like food and energy, a 2% bump simply doesn’t keep up.
The starting-out and training minimum wage would move to $19.16 to remain at 80% of the adult minimum wage.
The minimum wage was last increased on April 1 this year. That 1.5% rise to $23.50, affecting between 80,000 and 145,000 workers, was not at the time in line with inflation, which sat around 2.5% in March.
“I know those pressures have made it a tough time to do business, which is why we have taken this balanced approach. With responsible economic management, recovery and relief is coming,” van Velden said.
“I am pleased to deliver this moderate increase to the minimum wage that reflects this Government’s commitment to growing the economy, boosting incomes and supporting Kiwis in jobs throughout New Zealand.”
Official documents show MBIE provided the minister with seven options for the minimum wage, ranging from maintaining the current rate to increasing it by 3% to $24.20 per hour.
A 2% increase was recommended, the ministry said, as this was “considered to best balance the two limbs of the objective – protecting the real income of low-paid workers and minimising job losses”.
“CPI inflation forecasts suggest annual inflation will ease to be within the 2–2.5% range in the first half of 2026 and remain relatively stable at around 2% from June 2026 through to 2028.
“These forecasts indicate that a 2% increase would largely maintain the real income of minimum wage workers relative to the level of the minimum wage when it last increased on April 1, 2025.”
Officials said a 2% increase would not have significant employment restraint effects.
But given recent economic data, including a gross domestic product (GDP) contraction and elevated unemployment, MBIE said it favoured a “cautious approach”.
“A 2% increase to the adult minimum wage is expected to affect approximately 122,500 workers, including those currently earning at or below the minimum wage, or between the current rate and $23.95.”
The key groups that would be affected include youth, part-time, female and Māori workers, as well as those in sectors such as tourism, horticulture, agriculture, cleaning, hospitality and retail.
“While these workers would benefit from a wage increase, they may also be more exposed to employer responses to increased labour costs, such as reduced hours or adjustments to non-wage benefits,” the ministry said.
“The estimated fiscal cost to Government from this increase is relatively modest, at $17.5 million annually, consistent with the small cost estimates across all rate options.”
Labour workplace relations and safety spokesperson Jan Tinetti called the 2% minimum wage bump “weak and shows just how out of touch they are”.
“Milk is up 13% and eggs are up nearly 20%. Power and gas bills are going up too, which is a huge cost to businesses and families. New Zealand is going backwards under this Government.”
The Green Party called it a “sour cherry on top of a terrible year” for workers.
Spokesperson for workplace relations, Teanau Tuiono, said “raising the minimum wage by less than inflation is a political choice”.
“It means, in no uncertain terms, that more people will face mounting debt and will struggle to cover the basics, let alone afford the unexpected costs of medical care, childcare, or urgent repairs.”
Julia Gabel is a Wellington-based political reporter. She joined the Herald in 2020 and has most recently focused on data journalism.