New Zealand raises minimum wage and increases taxes on the rich

New Zealand is raising its minimum wage to $20 an hour and increasing the top tax rate for the country’s highest earners to 39%.

The changes will be rolled out on Thursday, alongside small increases to unemployment and sickness benefits. The government estimates the minimum wage increase – a rise of $1.14 per hour – will affect up to 175,500 workers, and increase wages across the economy by $216m.

The new top tax rate will apply to anyone earning more than $180,000 a year, about 2% of New Zealanders. The government estimates it will bring in an additional $550m in revenue this year.

OECD data shows that New Zealand’s previous minimum wage, as of 2019, was already among the top five highest in the world. Over the course of the Covid pandemic, many of the country’s essential workers have been minimum wage earners – including those who work at the airport and in border jobs, and are considered the frontline defence against the virus.

In 2020, unions called for an increase to the living wage, $22.10, for those on the front lines. “It’s a big deal to these workers. Part of it’s the money, part of it’s the dignity of feeling rewarded by the community for the sacrifices they’re making,” United Union national secretary John Crocker told TVNZ at the time.

Speaking about the changes this week, the prime minister, Jacinda Ardern, said they fulfilled a pre-election promise and represent “real and long-overdue improvements to the support we provide our most vulnerable”.

“There is still much more to do, including building more homes, improving our health system, investing in education, training and job opportunities,” she said.

New Zealand continues to struggle with high child poverty rates and housing costs. Housing in Auckland, for example, is among the most unaffordable in the world, with house prices sitting at around 11 times average income.

The housing shortage has hit vulnerable New Zealanders particularly hard. On Tuesday, Stuff reported that waiting lists for public housing had hit a new record, with more than 22,800 households waiting for a home.

The opposition National party opposed the minimum wage increase: “Sharply increasing the minimum wage during a period of extreme uncertainty for small businesses is economic vandalism,” said its workplace relations spokesman, Scott Simpson. The ministry of business, innovation and employment had advised the government to delay the increase due to economic uncertainty caused by Covid-19.

The Ardern-led government has raised minimum wage gradually over the past four years, adding up to an increase of $4.25 an hour since 2017. Last year, Ardern made headlines for encouraging New Zealand employers to consider adopting a four-day workweek and other flexible arrangements as a way to rebuild from Covid-19.

“I hear lots of people suggesting we should have a four-day workweek,” she said at the time. “Ultimately that really sits between employers and employees. But as I’ve said there’s just so much we’ve learnt about Covid and that flexibility of people working from home, the productivity that can be driven out of that.”