With the recent release of coalition agreements between National and ACT, and National and NZ First, we now have a clear indication of the new government’s policy priorities and what to expect in the employment sphere.
Continuing in our series of articles considering employment policy changes (with an overview available here, fair pay agreements here and 90-day trials available here) contemplated by the incoming government, this article considers the agreement between National and NZ First to “commit to moderate increases to the minimum wage every year”.
In doing so, we look to what was campaigned on, what the current approach to annually reviewing the minimum wage is and what the National and NZ First commitment is likely to mean in practice.
What was campaigned on
This commitment differs slightly from NZ First’s campaign to “examine the feasibility of lifting the adult Minimum Wage to at least $25 an hour by allowing businesses a tax concession to do so”.[1]
In comparison, the National party’s comments on the minimum wage have oscillated between identifying that the minimum wage is not keeping pace with inflation[2] and that inflation-based increases to the minimum wage are concessions that there is a cost-of-living crisis.[3] They did not appear to have committed to a clear policy on minimum wage regulation, however.
In further contrast, in August 2023 the ACT Party campaigned on freezing the current minimum wages for a three-year period.[4]
While NZ First only sought examination, and not a commitment to implementation, the resulting agreement on “moderate increases” leaves considerable room for interpretation.
Current approach
It is a statutory requirement that the minimum rates of pay are reviewed annually. Since 2012, this has been done according to guidance set in a 2012 Cabinet Minute. Pursuant to this, the Ministry of Business, Innovation and Employment (MBIE) is:
- required to carry out three years of “streamlined” reviews followed by one “comprehensive” review. The exception to this was the 2021 review, where it was determined that the ongoing pandemic and changing economic circumstances warranted an out of cycle comprehensive review; and
- set the objective to “keep increasing the minimum wage over time to protect the real income of low-paid workers while minimising job losses”.
A recommendation is then made to Cabinet, who must agree to the new minimum rates.
From MBIE’s criteria it is clear that the approach to minimum wage increases is inherently tied to inflation, keeping pace with the cost of living and preventing minimum wage earners from being disadvantaged in real terms rather than achieving substantive change.
In this context, it is hard to predict what exactly is contemplated as a “moderate increase” and how the incoming government seeks to achieve this. Arguably, the current methodology that only seeks to maintain the value of the minimum wage against inflation could be described as moderate. Unless the criterion for review is fundamentally overhauled, changes to the minimum wage are guided by the broader economic circumstances rather than being an independent policy.
A moderate impact of minimum wage increases?
In recent years, setting the minimum wage has been considered in tandem with the possibility of fair pay agreements (FPAs). This is because FPAs were intended to primarily address lower income industries and set these specific industries’ minimum rates of pay that sat above the general minimum wage under the Minimum Wage Act 1983.
Where a 2020 research study found that Aotearoa New Zealand has a relatively compressed distribution of low and minimum wage workers,[5] these industry specific rates of pay had potential to create different remuneration “floors” and fundamentally change how wages are distributed in New Zealand.
In having fewer minimum wage or lower income earners, academics have suggested that the direct impact and ripple effects of annual minimum wage increases is lessened. This would ameliorate and moderate the often-repeated concerns of the effect the annual increases have on businesses and the economy.
Of course, with FPAs set to be gone by Christmas, we can only speculate on whether the incoming government seeks to implement its proposed minimum wage increases.
Conclusion
The 2024 minimum wage review is likely to commence soon, if it has not already.
Where setting the minimum wage does not feature in the new government’s 100-day plan and there has not been an indication that the underlying considerations for this will be reviewed, we can only wait to see how (or if) the first post-election increases reflect National and NZ First’s stated intentions. Rather, minimum wage changes are likelier to reflect the economic climate and changes to the consumer price index.
At this stage, we do not consider the National and NZ First agreement on increases to the minimum wage implies any fundamental change to how things operate. Further, it is unclear if given NZ First and ACT’s apparently contradictory positions on changing the minimum wage, the government would be able to implement any significant change to status quo.
Notwithstanding this, the recent release of coalition agreements has returned some unexpected results so we cannot rule out other changes being in the pipeline. In any case, our experienced employment law team will be watching as it unfolds and report back if should things develop further.
[1] https://www.nzfirst.nz/2023_policies
[2] https://www.national.org.nz/labours_economic_mismanagement_laid_bare
[3] https://www.national.org.nz/wage-increase-is-admission-to-cost-of-living-crisis
[4] https://www.act.org.nz/bringing_back_90_day_trials_a_good_start_but_act_will_bring_real_change
[5] David C Maré and Dean R Hyslop Minimum Wages in New Zealand: Policy and practice in the 21st century (Motu Economic and Public Policy Research Trust, Wellington, 2021) at 4.2.2.
