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Minimum wage increase has minimal impact without stronger supports

For the second time inside of two years the National Government has increased the minimum wage by 50 cents per hour, this year equating to a 3.3% increase (down slightly from last year’s 3.4%).

While this initiative from the National Government is a commendable acknowledgement of the rising costs affecting our most needy, the increase is not an effective solution for reducing poverty in New Zealand. It falls short of being a fair wage, let alone being an adequate wage to sustain a family.

Child Poverty Action Group (CPAG) says to effectively target a reduction in poverty, the minimum wage needs to increase by at least 10%. It’s critical that it also be strengthened by improving multiple other supports, such as proper indexation of Working for Families (WFF), and a return to the abatement rate of 20c (per additional dollar earned over the threshold) for the Family Tax Credit.

The $18 per week increase in take-home pay for those working a full-time job at $15.75 per hour, without dependents, will barely cover the new year rent increase.

“For many families with dependents, not only is the increase insufficient for the increased housing costs, but if the overall family income is more than $36,350 (before tax, per annum) the value of the increase will be reduced through the WFF rate of abatement,” says Associate Professor Susan St John, CPAG’s economics spokesperson.

For every additional dollar earned over the earned-income threshold of $36,350, WFF reduces at a rate of 22.5 cents in the dollar.

“We need a realistic increase in the minimum wage to begin to share the fruits of economic growth more fairly, and properly indexed weekly Working for Families support to help sustain the living standards of those on low wages with children,” says Frank Hogan, CPAG’s law and children’s rights spokesperson.

“These are not alternatives, they must work hand in hand.”