Why is Labour funding an AI adoption wave that has already broken?

A funding pitch for a problem that’s fixing itself

Labour leader Chris Hipkins used a Rotorua visit on 11 August to promise small businesses a suite of new support, headlined by a $2 million per year fund to help SMEs ‘get ahead’ with AI. The package also extends the existing AI advisory pilot to $3 million a year, lifts founder and startup support to $4 million a year, and restarts the apprenticeship boost.

It’s a politically tidy announcement, timed a week after Prime Minister Christopher Luxon’s ‘parent-child mentality’ speech to the same Rotorua business audience forced an apology. But the economics don’t stack up the way the politics do. Labour is offering to fund the on-ramp to AI adoption at exactly the moment most SMEs are already on the road.

The adoption numbers have lapped the policy

The pace of change here is the whole story. In July 2025, MBIE’s AI strategy cited a 2024 NZIER/Spark survey finding that 68% of NZ SMEs had no plans to evaluate or invest in AI. That number now looks like ancient history.

By April 2025, MBIE’s own survey of 500 SMEs found 94% were aware of at least one AI tool. Xero research in May 2026 found 61% of NZ SMEs were already using AI tools proactively, with 91% planning to increase their use over the next year. By August 2026, HP and Xero research put usage at nearly two-thirds, with 64% of those firms reporting time savings averaging about one working day.

Awareness is not the constraint. Cost is not the constraint. Uptake has surged without a cheque from Wellington. A subsidy to encourage adoption is solving a problem the market has largely solved on its own.

What SMEs actually asked for

Here is the awkward part for both major parties. When Xero asked SMEs what role government should play, 57% said set clear regulations and accountability standards, and 55% wanted stronger data protections. Only one in three wanted education and training resources. The majority want rules and protection. The policy response, from Labour and National alike, is weighted toward the minority preference.

The firms still holding back won’t be moved by money either. Among the sceptics, 44% said AI simply wasn’t relevant to their business, 47% cited data privacy and security concerns, and 89% had no intention of investing soon. Those are structural objections, not financial ones. You cannot subsidise your way past a privacy worry.

Shannon Harris, HP New Zealand managing director, told RNZ in August 2026 that businesses did not need lengthy policy documents to benefit from AI but did need simple rules on security, governance and appropriate use. That’s a request for guardrails, not grants.

The guardrails nobody is building

National is not starting from zero. In January 2026 the government launched an AI advisory pilot, allocating $765,000 through MBIE to help at least 51 SMEs build AI plans, with co-funding up to 50%, capped at $15,000 per business. Labour is proposing to scale the same model. Neither is addressing the structural risk sitting underneath the adoption boom.

In August 2025, Ben Reid of AI Forum NZ warned that the government’s AI strategy risked ‘hollowing out NZ’s technical capabilities’ and leaving domestic industries ‘subject to increased rent-taking by Big Tech’. His line was blunt: encouraging local firms to exclusively adopt overseas commercial AI services isn’t investment, it’s growing consumption. IP lawyer Frith Tweedie added that NZ’s light-touch approach puts firms with international aspirations at a disadvantage against stricter overseas regimes.

The Privacy Commissioner, in August 2025 submissions, said the strategy covered the upside well but missed the chance to consider risks, flagging personal data used to train models surfacing in unexpected places. Victoria University’s analysis noted NZ’s ‘Responsible AI Guidance for Businesses’ is entirely voluntary, placing the country among the most relaxed on AI regulation.

The prize is real, the strategy isn’t

The upside is genuine. MBIE estimates generative AI alone could add $76 billion to the economy by 2038, over 15% of GDP, and nearly half of SMEs told Xero AI could be the biggest opportunity since the internet. But capturing it depends on trust, data control and protection from lock-in, none of which a $2 million grant fund delivers.

The SMEs racing ahead face no meaningful framework governing what platforms do with their data. The ones holding back cite privacy, not price. Labour’s fund is not nothing, but it is a political gesture dressed as an economic strategy. Whoever wins the argument on regulation, not subsidies, will actually be answering the question business owners are asking.

Sources

• Hipkins promises small businesses a ticket to the ‘AI revolution’ (2026-08-11)
• New Zealand SMEs embrace AI but want clearer rules (2026-05-21)
• Many businesses using AI to save time, but do they know what they’re doing (2026-08-03)
• NZ launches AI advisory pilot for small businesses (2026-01-19)
• Government launches AI advisory pilot for small businesses (2026-01-14)
• Government’s AI strategy criticised for lack of detail, timelines, deliverables, funding (2025-08)
• Privacy commissioner flags risks in new AI strategy (2025-08-11)