Inflation Higher. Minimum Wage Lower. Living Wage Better

The poorest working people are facing higher costs they can’t avoid – but with less money to pay. That needs to change.

You can find more about this story at Locked Out with Craig Renney

Statistics are often interconnected.

If you look at one measure, say rental prices, you can also see information about incomes, building activity, and population change. In economics we assume all that you could want to know about a good or a service is incorporated into the price measure – we even give it a fancy title, the “efficient market hypothesis”.

Quite what information the government is drawing from the latest round of inflation data is anyone’s guess. In March 2025, the Consumer Price Index was measured at 2.5%. That’s up from 2.2% in the previous quarter. Inflation was driven up by increases in rents (up 3.7%), Groceries (4.3%), household energy (up 7.2%), insurances (up 8%), and rates (up 12%). Rents contributed the most to the overall inflation increase. It’s clear that the $3bn tax cut for landlords just isn’t enough!

Because the prices of things that you can’t avoid are rising faster than others – it means that inflation is rising faster for those on low incomes. When you have less money, you have fewer choices, and more of your spending goes on items like paying the rent. This matters particularly for those on the minimum wage - In New Zealand, approximately 128,000 workers aged 16 to 64 were paid at or below the minimum wage according to MBIE. That’s the same as the entire population of Dunedin.

This year the minimum wage was increased not by the 2.5% needed to keep up with inflation - but by 1.5%. It’s the 2nd year in a row where the government has increased the minimum wage by less than inflation. In the first year, this left full-time minimum wage workers $963 a year worse off annually in real terms.

This year they will be a further $1,475 a year worse off – or $28.36 a week in real terms. That means across the two years – Minimum Wage Workers are now cumulatively $2,438 worse off in real terms. That is money being sucked out of the pockets of many workers we thought of as ‘essential’ during COVID - cutting the purchasing power of their wages.

Many of you may remember that we had a tax cut at the last Budget. The value of the tax cut a minimum wage worker received in the last Budget is $12.50 a week – meaning these workers are poorer even after the tax cut, solely as a consequence of the government’s decisions. And that’s before the return of prescription fees, half-price public transport, and other new costs. What the Finance Minister hath given with one hand – she has more than taken away with the other.

Why are we talking about this? All this data goes to show how essential the Living Wage is in New Zealand. For those of you who don’t know – the Living Wage is an hourly wage level set by the Family Centre Social Policy and Research Unit. Its rate is set deliberately to allow working people and their families to lead lives of dignity and to be active participants in their community. While workers can’t rely on the Minimum Wage to rise with the cost of living, they can rely on the Living Wage.

But the government is consulting over changes that could strip away protections for Living Wage workers. The consultation document would see the end of guaranteed Living Wage for those working on government contracts in cleaning, catering and security guard services. The Minister claims the Living Wage will be replaced by a new ‘economic benefit rule’. Nothing in that proposed rule protects wages, terms & conditions, worker protections, or income security. Economic benefit clearly doesn’t mean any benefit for workers or their families.

The Living Wage protects workers from exploitation at work. Many workers on the Living Wage have time to actually be with their family - rather than working two or three jobs just to pay the rent or put food on the table. Given that New Zealanders work some of the longest hours in the OECD in-work poverty is not because Kiwis won’t or don’t work hard enough. In the union movement we have heard story after story about how transformative the Living Wage can be.

If you still don’t believe that the Living Wage is important - perhaps I might help with some numbers here about what would happen to those workers. Also – let’s not forget these are companies already paying the Living Wage – so we aren’t asking them to raise wages from where they are now. We are simply asking them to pay the current rate.

If a worker loses the protection of the Living Wage and moves to the minimum wage – a full-time 40 hours a week worker will be $8,944 a year worse off. $172 a week. For the same job. The same effort. The same output. Over the typical 5-year span of a set of Government Procurement guidelines - the one that this government is consulting on - that works out at $45,000 less pay per worker.

The Living Wage Movement has estimated that there 4,600 workers who will be impacted by this proposed change. If they were to all collectively to move the minimum wage, then this would generate more than $41m in income losses annually. More than $200m taken out of workers pockets over that 5-year timeframe. For the same job. The same effort. The same output

But it’s not just workers who would be negatively affected by that change. The Government would lose up to $9.6m a year in income tax from the group – just short of $50m across the period. Spending on income support such as Working For Families and Accommodation Supplement would rise. The only beneficiaries of that would be the companies hiring those workers. Their wage bill would fall – and would simply return that money as new profit.

Amy

Let me give you an example worker affected by this change

Amy works full time (40 hrs) as a Caterer providing school meals - she is paid the Living Wage and gets $1,112 a week before tax. Her income is topped up by Working for Families and Accommodation Supplement to the tune of $383 a week and she pays median rent in NZ ($600 a week).

Amy is moved to the minimum wage ($23.50 an hour) - and now gets $940 a week in wages. She is $8,944 a year worse off. Her income is now topped up more by WFF and AS by $473 a week - the taxpayer is now providing an extra $4,680 in welfare a year. Previously Amy paid $9,568 in income tax a year. She now pays $7,462. The government is paying $4,680 extra, and is receiving $2,106 less.

That means the taxpayer is now $6,696 a year worse off. Amy and her family are still $2,015 year worse off even after welfare and tax changes. That means Amy's family will have to do without $38.75 a week. For the same job. The same effort. The same output.

Only this Minister of Finance could think that this is a good deal.

If the company employs 150 workers, that would be an extra $1.34m in their pockets annually. For the same work, doing the same thing, delivering the same output. If you think that prices will come down I have a bridge to sell you.

For those thinking that it won't impact existing workers, look at the example of Bus Drivers. In 1990 bus drivers couldn’t be paid less than 66% above the minimum wage. By 2020, competitive tendering often drove rates to within 10% of the minimum wage. We know what competitive tendering for this sort of work does for low-income workers. Especially when unemployment is rising and when there are people increasingly desperate for work – as they are now.

So this is a package that:

- Makes workers worse off

- Makes taxpayers worse off

- Makes communities worse off

- Increases welfare payments

- Likely increases child poverty, family stress, and financial hardship The only winners are firms who can now pay less.

Amy’s story will be repeated around the motu. Can we take a step back and ask ourselves the question - “Is this really how we are going to grow the country?” By cutting the wages of cleaners, security guards, and caterers? Is this economic success? In his maiden speech to the House, Christopher Luxon said that New Zealand had to “work smarter not harder”. The government needs to think harder. It needs to think smarter than making Amy and the taxpayer poorer, while sending profits for companies higher.

The decision to increase the Minimum wage by less than inflation for two years in a row and to remove living wage protections in government contracts is a choice. A choice being actively made by this government. With 46% of workers receiving a pay rise less than inflation last year, it also shows that many working people are still doing it really tough. Unemployment is still rising, with tens of thousands more people on Jobseekers Support since the election.

The inflation data – and the government’s response to it through the minimum wage - is another piece of evidence about who is winning and losing in the economy. It is clearly not workers who are benefitting from whatever weak growth is happening right now. The poorest working people are facing higher costs they can’t avoid – but with less money to pay. That needs to change. We should lift the minimum wage so that it at least rises with inflation - and we should protect those on the Living Wage.