Data 4 – The Minimum Wage, MPs salaries, wealth & inequality
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.
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.
So the salaries of parliamentarians are determined by a group of experts again. Why can not the pay rates for all employees worked out by experts. There used to be experts in work measurement called industrial engineers. A rating scheme to measure work would have rate skills and knowledge separately, the safety of the work, experience, the physical effort involved, and the responsibility due to the employee. The hours of work might have to be involved because high concentrating work would need limiting. There should be some allowance for people working during the hours the human body is at a natural low ebb. The points each function scored would get an income rate . Instead of strikes there would be arguments over ratings and point rewards.
The CPI is just one index used to measure inflation it is not “inflation”.
Unless you understand that the CPI has been manipulated by removing the bulk of housing costs and through changing the basket of goods measured, you can never make a sound argument about real wages and inflation.
40 years ago the CPI was a better measure of inflation and if we used the same methodology now as then, CPI would be double what it is now.
The CPI is an understated measure of inflation for 2 main reasons:
1 Blue collar wages are generally increased in line with the CPI
2 CPI drives the OCR, a low CPI means artificially low interest rates punishing savers and rewarding home owners.
This is the main reason for growing inequality as real wages fall as real house prices rise.
Conflating CPI and inflation is one of the big economic BS lies we are being fed and is the main reason most workers are worse off than 40 years ago.
Re MPs pay.
They should be paid a reasonable base rate with the possibility of performance bonuses (decided by voters) at the end of their 3 year term.
Performance bonuses could range from 0 up to $100,000 depending on how well voters deemed MPs performed.
Resulting in improving democracy by giving voters another way to hold them to account come election time. It may even encourage more people to vote.
If MP salary falls to low then those that stand will only be the very rich or those with little talent that would not earn more than $150 thousand a year in the private sector. We need to attract the best around exCEO are great .
Hence, the performance component suggested above.
By the way, there are far too many overpaid CEOs that fail to perform. And we need to protect against that.
The pay peanuts get monkeys argument is bollocks and most people know this.
Politicians do the job for the power, prestige, legacy and a desire for political change aligned with their belief system. Most politicians will say they don’t do it for the money. Anyone who has ever been elected or sat on a committee knows its a pretty thankless task. If a politician is there for the money then they arent there out of a passion to change stuff or a desire to serve. If the payment is too high you end up with out of touch ceo types.
Maybe when we vote we could also nominate the politician’s hourly rate too.
One of the few things I agree with Winston about – most of them would crawl over broken glass to get the job.
Footling about with the minimum wage levels is a bandaid on the wealth/income gap that is crippling NZ. In a small country with a tiny 5.3 million population, and a workforce of about two thirds, there’s only one way to restore fairness and equitability. Statutory control in entrenched legislation.
An annual survey of all IRD returns will disclose the full earnings spectrum. The law should specify that the benefit and pension levels shall be one seventh of the average top decile. The minimum wage, two sevenths. The minimum supervisory level, three sevenths. The minimum middle management level, four sevenths. The minimum senior management level, five sevenths. The CEO levels at six sevenths. And the highest level of seven sevenths.
The first two levels shall pay no tax, the third 15%, the fourth 20%, the fifth 25%, the sixth 30% and the seventh 35%. Bands of up to 10% bonus levels can be included for each level of wages to reward effort etc.
GST to be scrapped in favour of Turnover Tax, and all narcotics legalised but taxed.
There, NZ wages and enviousness solved.