A leading budget adviser says New Zealand should scrap the minimum wage because it encourages employers to pay staff less than they are worth.

It comes as the New Zealand living wage is adjusted in line with movements in wages. It now sits at $20.20, to come into effect on July 1.

The original living wage was calculated in 2013 as $18.40 an hour, and defined as the income necessary to provide workers and their families with the basic necessities of life and allow them to participate in society.

Since it has become adopted by “accredited living wage employers” around New Zealand, it has been updated annually to reflect movements in the wider employment market, to $19.80 in February 2016.

At $20.20, the figure is 68 per cent of the average hourly earnings in New Zealand.

Darryl Evans, chief executive of the Mangere Budgeting Service, said staff who were paid at least the living wage would feel more valued, they were likely to work harder and be more committed so there was less staff turnover. He described it as a win-win for businesses and staff.

But he said the minimum wage was a problem. “I strongly believe we need to not have a minimum wage.”

The minimum wage is set to increase to $15.75 on April 1.

He said it drove employers to pay people that minimum rate, rather than considering what value staff offered the business.

Evans said it was almost impossible for families to survive on that. Many he dealt with had to choose whether they paid rent, petrol, food or other bills because they could not pay for everything.

“We need to drop the minimum wage and pay people what they are worth,” he said.

Evans said his nephew had recently started work, at 19, earning $17.95 an hour. “That’s okay for a 19-year-old who has come out of school but if you are an adult male trying to run a home with a wife and kids, it’s soul destroying to slog your guts out 40 hours a week and not be able to sustain the household.”

Kirk Hope, of BusinessNZ, said the living wage was not a relevant benchmark because it did not come with increased production. “All you are doing is artificially inflating wage prices, and production prices, without a consequent increase in productivity.”

He said that would push up the price of products and services. “It lacks relevance, it’s quite an arbitrary number.”

Adviser Liz Koh said what represented a living wage would depend on individuals’ circumstances.

“Increasing labour costs means higher costs for employers and that may impact on the availability of jobs. Employers may react to high labour costs by expecting their current employees to be more productive… The real answer is for there to be economic growth. If the economy is growing, there will be an increased demand for labour, and wages will rise.”

She said increasing wages was no guarantee that poverty would reduce. “Problems with addictive behaviour, mental health issues, relationship breakdown and a host of other factors can cause poverty even if wages are at the ‘living wage’ level.”

It is something Wellington City Council is grappling with.

It estimates paying the living wage would add $700,000 to the $90 million wage bill. But Mayor Justin Lester said it was committed to the move as part of the annual plan.

Chief executive Kevin Lavery rejected claims that 17 staff lost their jobs because of the implementation of the living wage.