By Mike Treen, retired union advocate

Members of parliament are to get a 10.5% pay rise over the next three years. Backbench MPs go from $163,961 to 181,200 in July 2026. This is broadly in line with inflation so it may not seem out of place. The problem is that MPs used to get a salary in line with other skilled workers. Today they are way above most.

In 1976, the year before the Remuneration Authority was established to set MPs pay, MPs earned less than the top pay rate for a secondary school teacher which was $14,580. If teacher salaries had only increased by CPI inflation rate since then that would equal $140,584 today. The top rate for a senior teacher is now $99,000. The backbench MP rate is $163,961 a year – 66% more.

Private sector inequality has grown to an even greater extent. Pay to NZX-listed company CEOs rose 3.6% to an average of $2.23 million or 32 times the average worker pay in 2023 from 2022. Renews reports: “The gap between CEO and worker pay has been widening in recent decades. In 1997, average CEO pay was 11 times higher than the average worker salary. In 2019, it had climbed to 18 times higher.”

Wealth inequality is even more dramatically unequal. IRD reported in 2023 that the top 10% of households by wealth own 60% of all the wealth. The bottom 50% own around 1-2%. That is a picture that has barely changed over the past decade.

Minimum Wage value being reduced

The minimum wage on April 1 increased by only 2% to $23.15 an hour. This was a real value cut given that inflation was up 4.7% in 2023. The cost of living for most families was up even more at 7%. The Act Party Minister Brooke van Velden recommended $23 an hour – 15 cents an hour less than the Cabinet agreed to.

From 1 September 2024, the Living Wage hourly rate is $27.80. This is an increase of $1.80 on the 2023/24 rate, which is in line with a 6.9% increase in New Zealand’s average ordinary time hourly rate.

The Living Wage matches what the Council of Trade Unions argues should be the minimum wage for everybody – a rate equal to 2/3 of the average wage. Today that would be two-thirds of the December quarter 2023 average hourly rate of $40.90 an hour or $27.27.

Since the 1999 Labour Alliance government was elected there has been a major real increase in minimum wages. It had been frozen for eight of the previous nine years under the previous National Party government.

Before1994, there was no minimum wage for workers under 20. A law change then introduced a minimum of 60% of the adult rate for 16-19 year olds.

In 2001, under the new Labour-Alliance government, the age of eligibility for the adult minimum wage was lowered to 18. The youth minimum wage rate was also increased to around 70% of the adult minimum wage. The rate was increased again in 2002, to 80% of the adult minimum wage. The youth minimum wage was technically abolished in 2008 for anyone employed for more than three months or in a supervisory position.

In 2013 National brought back an 80% minimum for workers 16-17 for the first six months in a first job. Most workers are not usually employed on the starting out wage.

When the Labour-Alliance government was elected in 1999 the adult minimum was $7 an hour $4.20 for youth. The adult rate was equal to about 40% of the average wage. By 2008 increases to $12 an hour the minimum reached 50% of the average. Labour leader Helen Clark said she was “comfortable” with the level reached and saw no need to go much further in relation to the average wage. National was elected that year and set rates from 2009 until 2017. Surprisingly, the John Key government continued above inflation increases and there was even a small increase in the percentage of the average wage when it reached $15.75 and 52% of the $30.25 average when he left office in 2017. (See https://www.employment.govt.nz/hours-and-wages/pay/minimum-wage/previous-rates/)

The newly elected Labour-led government maintained above-inflation increases that also increased it as a percentage of the average wage. At $22.70 on 1 April 2023, it was now 58.3% of the average wage of $38.93.

This is one of the highest minimum wages as a percentage of the average wage in advanced capitalist countries – especially given that youth rates apply to a relatively small number of workers. Employers hate higher wages because they are employers.

To them, and this is true in part, profits happen after wages have been paid and lower wages mean higher profits. Businesses are in business to make profits so it doesn’t matter if the economic laws they think govern their system have been disproved by a relentless rise in real minimum wages that did not lead to an immediate rise in unemployment or price inflation.

Prices have increased less than 80% since 1999 while the minimum wage has increased nearly three times as much. Despite all the neoliberal dogmas that said these increases in the minimum wage would lead to escalating unemployment, especially for young people, the opposite has happened.