In response to the Remuneration Authority's decision on MPs' salaries, Prime Minister John Key says he believes members of Parliament should receive a 0 per cent pay rise.

MPs say they are reluctant to accept an $8200 pay rise, while calling for the system that rewards them to be overhauled.

The Remuneration Authority - an independent body - this afternoon published its determination which hikes a backbencher's salary by 5.4 per cent to $156,000 a year.

Prime Minister John Key will get an extra $23,400 a year, although he says he doesn't want it.

His deputy, Finance Minister Bill English - who has been calling for restraint in the public service - gets $16,900 more in his pocket. He agrees with the boss that the authority must explain the rise.

Cabinet ministers with more than one portfolio also score almost $15,000.

Rules around travel and other perks were recently tightened, and they are now set by the Remuneration Authority as part of the salary package.

In its determination, the authority explained it calculated travel perks given to MPs and their families as $3200 - which it says is less than they got in previous years.

It also doesn't seem to think MPs got enough.

It noted that: "based on current movements in remuneration for top-level executive positions, the gap between market remuneration and the remuneration of senior members of the Executive and Parliament is increasing...the Authority continues to have concerns at the widening gap between the remuneration of Ministers and the chief executives and staff reporting to them and will continue to review the gap annually."

Chairman John Errington said tonight that it is MPs who set the authority's rules.

"They set the criteria, they set the process, and we think we follow that process and criteria pretty well."

Last year the authority cut some of the travel perks available to MPs, and their spouses, partners and children - and some of the increase reflects that, he explained.

"It's a bit like if we said to you we'll pay you $100,000 a year and you can choose to have that in salary or other types of benefits. If your other types of benefits went down in value then you'd expect the salary to go up. You are still getting the same remuneration in, it is just in a different form."

'SYSTEM BROKEN'

The increase comes in the wake of news that the minimum wage will rise by 50 cents to $14.75 an hour from April 1st, which workers' unions described as "mean-spirited".

Labour leader Andrew Little is calling for a reform of the system, saying it should be put back in the hands of MPs. He will get an extra $14,900 to spend, taking his salary to $283,400.

Little wouldn't say if he will hand the money back.

"These determinations get made, we get paid, and that's the way it operates. I'll have a think about what I do with that...the issue is that we have a system that is broken."

He called on the Government to act. "The Prime Minister has been saying for years that they pay should be frozen but he does nothing about it."

"We have a system where low income workers can get 50 cents an hour, because that's what the state says is good. And then another branch of the state says MPs should get $9000 a year...It's wrong."

'WELL-REWARDED'

Other party leaders, with more than five years' experience in Parliament, get an extra $8000 which takes their tax-payer funded chunk to $171,200.

Earlier, senior ministers Steven Joyce and Simon Bridges, both on $268,500 a year, backed Key's stance, but were slow to say they'll give the cash away.

"It is not as easy as all that," Joyce said. "It is one of the things I think everyone will be thinking about but the bigger question is are [the Remuneration Authority] getting it wrong and are they getting it wrong regularly."

Asked before the figures were finalised if he would reject the rise offered to MPs, or give it to charity, he said: "I don't know what it is yet, so it's hard to reject.

"We'll see what happens but we certainly don't agree with the decision."

NZ First leader Winston Peters, on almost $165,000 a year, also believed MPs don't deserve a boost.

"This is not a high-paying job, but we get well rewarded and we should be satisfied."

The Green Party are also opposed to the increase and will today propose an overhaul of the "broken system".

They want MPs' pay rises to be set at the nominal increase of the median wage - a position that would have seen MPs get a $780 hike in 2013, when they actually got $2,800.

READ MORE: Top five reader comments on MP pay rises

West Coast list MP Kevin Hague said he won't be handing any back because he already donates a "significant" part of his income to charity.

"Every individual MP will have their own position on that."

The hike is set to be backdated to July.

Backbenchers' salaries have increased by almost $22,000 since 2007 and they now get almost $148,000 a year, plus perks.

In August, their Wellington accommodation allowance was boosted by $4000 to $28,000 a year.

LOW INFLATION

Key, who is paid almost $430,000 a year, said he had written to the authority earlier in the year saying he thought there should be no increase.

"Inflation is running at a low level and we're expecting the public service to have modest pay increases. I think zero is appropriate given MPs have had pay rises over the last five or six years."

After the last round of wage rises, authority chairman John Errington warned the gulf between Cabinet ministers and top executives was growing and would be addressed in the next determination.

About two-thirds of the public service, or 40,000 staff, will enter wage negotiations this year, with those working for district health boards, the Ministry of Social Development and the Department of Corrections especially dissatisfied.

This month Finance Minister Bill English, who is under pressure to deliver a promised Budget surplus, warned them not to expect much.

"It's still important that the Government lives within its means," he said.

Public Service Association national secretary Richard Wagstaff said public servants were "very tired" of hearing the Government could not afford to increase their pay.

"Education, police, health, they are all up for bargaining this year," he said.

"This will go down really badly."

MINIMUM WAGE PAIN

Both the Public Service Association and the Council of Trade Unions were disappointed with the 50c rise in the minimum wage for about 300,000 workers, from $14.25 an hour to $14.75.

Workplace Relations and Safety Minister Michael Woodhouse also raised the starting-out and the training minimum wages by 40c to $11.80 an hour.

CTU president Helen Kelly said the economy could afford bigger increases. Unions have campaigned for the living wage of $19.25.

"The mean-spirited increase . . . means thousands of hard-working families facing another year of struggling to make ends meet," she said.

"From the bottom of the recession in 2009 to 2013, productivity rose 10.1 per cent but real wages rose only 1.5 per cent. Workers are due a big catch-up."

Unions say the 50c cent increase in the adult minimum wage would not be enough for the workers on it or near it.

But business owners say the financial impact of a minimum wage rise goes beyond increased pay for those on the wage, with one Wellington restaurant saying it will be "hard".

Wellington restaurant Mama Brown expected the wage increase to cause some pain for the business.

The restaurant had not increased its prices since it opened in June 2013 and employed seven staff.

Owner Shah Aslam said new employees were always hired at 25c to 50c an hour above the minimum wage, but yesterday's announcement would be hard on the business.

A minimum wage increase flowed through to other, higher paid staff, whose wage expectations would rise in parallel.

A 50c increase across the board added more than $7000 to Mama Brown's annual wage bill.

Aslam said the increase would not affect hiring intentions, but the business might look twice at replacing a staff member who left.

He believed the hospitality industry could be affected by wage increases more than other industries, because of the generally lower price point of the products sold.

"For bigger industries – let's say someone is buying something for $100. If they increase it by $5, no one's really going to notice that, but for a coffee cup you can't increase it by $5," he said.

"It's hard, especially with so many cafes in Wellington alone. People move on."

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