Key Points:

In more benign times, the minimum wage tends too often to be viewed in isolation, with little heed paid to its place in the wider economic picture. That was never going to be the case this year. Too large an increase could cost jobs. It would also render redundant the likes of the tax benefits handed out only last week, which are designed to help small and medium-sized businesses take on staff. Wages can be paid only when an employer can afford them.

If, on the other hand, there was no rise, the purchasing power of the country's lowest income earners would be diminished.

There would be plentiful ammunition for the Labour Party to suggest that group was being asked to shoulder an unfair share of the economic burden, especially when the upcoming tax cuts were added to the mix.

This conundrum has once again brought out the pragmatist in John Key. There would have been some discussion about following the lead of the previous National Government, which froze the wage floor for three years. But, after some indecision, the Prime Minister has announced the minimum wage will increase from $12 an hour to $12.50, a rise tied to the 4.2 per cent inflation rate.

Only the hopelessly optimistic or the ideologically blinkered could object to that in the present recessionary environment. If it is the smallest lift in the minimum wage since 2005, that is simply a reflection of reality.

Yet this did not stop the Unite union declaring, on the same day, that it was lodging a request for a citizens-initiated referendum on whether the minimum wage should be raised to $15 an hour, and then to two-thirds of the average wage within three years. This would be about $16 based on current figures. The Unite leader, Matt McCarten, will doubtless try to promote this proposal by appealing to New Zealanders' egalitarian instinct. But it is sizeable leap from that fine impulse to being convinced this means forcing everybody into a narrow band of earnings.

As important as equality is, it does not outrank opportunity among the principles that adorn healthy societies. Everybody should have the opportunity to improve themselves by their own endeavours. The unsaid canon underlying Unite's proposal is that individuality should be ignored. As such, an unqualified youth new to a job would be paid close to the same as a fully trained worker with 25 years' experience who was on the average wage. If this has any relationship to egalitarianism, it can only be to the most ludicrous of extremes.

More fundamentally, a minimum wage indexed to two-thirds of the average wage would trigger a ratcheting up of all wages. Again, this could lead to redundancies. At best, it would restrict employers' ability to take on more staff. It would also invite an inflation-dampening reaction from the Reserve Bank. Right now, the Governor has few inflation qualms. But Unite's plan has a three-year time frame. Global economic conditions will be far different in 2012.

In the event of the union's programme prompting higher interest rates, the low-paid will, as usual, be least able to cope.

Mr McCarten concedes it will be a challenge to bring Unite's proposal to fruition, but says the unions pushed the former Labour Government into raising the minimum wage from $9 in 2004 to $12 last year by campaigning to "supersize my pay". This totally overlooks not only the change of Government but the vastly changed circumstances. Indeed, the whole campaign smacks of ideological grandstanding. At the best of times, it would be a misguided attempt to improve the lot of the country's lowest-paid workers. At the moment, its dismissive view of the wider economic picture means it can only be seen as an irrelevance.