In a statement, Otago Regional Council interim chief executive Pim Borren said it had agreed to increase all its contract bus driver pay rates to the median wage of $27.76 per hour.
The council had recently agreed to lift wages to the living wage of $23.65, which was always considered a first step, Dr Borren said.
The pay-boost was aimed at addressing ongoing driver shortages which have caused disruptions to Queenstown and Dunedin bus services in recent months.
"We anticipate a return to full timetable services after the December and January summer period," Dr Borren said
More money would start to attract bus drivers who were already qualified and make operators competitive with trucking companies, taxis and ridesharing services.
It would also allow bus drivers to recruit offshore, he said.
He was taking personal responsibility for improving services, and options to explore potential joint governance arrangements with the Dunedin City Council and the Queenstown Lakes District Council could be brought to the incoming regional council.
Dunedin Tramways Union president Alan Savell said he was "just ecstatic" about the news, but drivers would be waiting until the money was in their bank accounts before they really believed it.
Ultimately the rise was a recognition for the hard work and long hours that bus drivers did, he said.
While members of the public had put up with reduced timetables for the past six months, they had still got behind bus drivers, who had noticed a huge difference in how people were ready to say hello and wave goodbye to them.
People had been "horrified" to discover how little they were earning.
He was optimistic the move would result in more of the 2000 people in Otago who were qualified to do the job rejoining the workforce.
"It’s a great job, you’ve got to be a people person — driving a bus is secondary," he said.
The priority for bus drivers was providing a service to the people of the city and those were the people Mr Savell hoped would be attracted to the role now it was financially viable for more people.
Tramways Union national president Gary Froggatt said the raise was good news for the union’s Dunedin members who had been behind the national average for some time.
The move would "not quite" result in Otago having the best-paid drivers in the country, as Go Bus in Auckland was paying $28 an hour, he said.
There was still work to be done on improving other conditions such as overly long or broken shifts to attract other drivers to the role, Mr Froggatt said.
