Budget 2026 delivers a mixed picture for New Zealand’s legal services sector. On one side, the Government has committed $1.076 billion to law and order over four years, including new courthouses, more prison funding and increased police resourcing. On the other, legal aid remains under pressure, public sector cuts will reshape demand patterns, and rising employment costs are squeezing practice margins.
Here is what matters most for your firm, and what you should be doing about it now.
How does the 2026 budget affect legal aid?
The Ministry of Justice has received $30.28 million in 2026/27 to meet demand-driven cost pressures in legal aid. This is time-limited funding designed to keep the system running while a broader review takes place.
The Ministry has established the Accessible and Affordable Justice Programme in response to the 2025 Triennial Legal Aid Review. This programme will look at the drivers behind rising costs and consider changes to legal aid settings in consultation with the profession.
If your practice relies on legal aid work, this matters. The funding is a short-term fix, not a long-term commitment. The real question is what comes out of the programme review and how it shapes rates, eligibility and the financial sustainability of legal aid going forward. Practices that depend heavily on legal aid revenue should be planning for different scenarios now, rather than waiting for the outcome.
More courts, more corrections, more criminal work
The Government is investing $100 million in two new courthouses in Rotorua: one for the Rotorua Law Courts (covering High Court, District Court and Coroners Court) and one for the Rotorua Māori Land Court. Construction begins in 2027, with the new facility expected to be operational by mid-2030.
The corrections budget has received $512 million, with funding set for a prison population of 12,118 by the end of 2026/27, up from 10,860 funded in last year’s budget. An additional $391 million has been allocated to frontline policing.
For criminal law practitioners, these numbers point to a sustained increase in demand. More police activity, tighter sentencing and a growing prison population will flow through to more criminal cases. If your firm handles criminal work, the pipeline is growing, but the question of whether legal aid funding keeps pace with that volume remains open.
Employment costs are rising for every legal practice
Several changes that took effect on 1 April 2026 are already hitting practice budgets. The minimum wage has risen to $23.95 per hour, KiwiSaver minimum employer contributions have stepped up from 3% to 3.5% (with a further increase to 4% from April 2028), and the ACC earners’ levy has increased from 1.67% to 1.75%.
These are not optional. While the increase in the minimum wage is unlikely to materially impact legal firms the increase in kiwisaver contributions will have an impact due to wage costs representing such a high percentage (usually 30-40% of legal fees) in firms. If you have not yet updated your payroll budgets and fee structures to reflect these increases, do it now.
FBT simplification: good news for partner vehicles
Budget 2026 confirms the Government will simplify fringe benefit tax rules for work vehicles, replacing the current day-counting approach with a category-based system from 1 April 2027. Under the new framework, vehicles will be classified by the level of private use rather than the type of vehicle, and detailed logbooks will no longer be required.
For law firms that provide vehicles to partners or senior staff, this is a welcome reduction in compliance burden. If your firm currently tracks exempt days and maintains FBT logbooks, that administrative overhead is set to reduce significantly.
What do the charity and not-for-profit tax changes mean for your clients?
Budget 2026 introduces a cap on donation tax credits at $100,000 per year (an effective maximum credit of $33,333), along with new integrity measures for trusts distributing income to tax-exempt beneficiaries. Not-for-profit organisations see their tax-free income threshold rise from $1,000 to $10,000.
If your practice advises charities, trusts or high-net-worth philanthropists, these changes require immediate attention. Clients with established charitable giving structures may need to reconsider how they arrange their donations. Trust structures that allocate income to charitable beneficiaries will need to meet new physical payment timeframes or face tax at the 39% trustee rate.
What should your firm do now?
- Review your legal aid exposure. If legal aid work makes up a significant share of your revenue, model what happens if rates or eligibility settings change following the Ministry’s programme review.
- Update your employment cost budgets. Factor in the minimum wage increase, KiwiSaver step-up and ACC levy changes. Review whether your charge-out rates reflect the real cost of delivering services.
- Prepare for FBT changes. Classify your firm’s vehicles against the proposed categories now so you are ready when the new rules take effect in April 2027.
- Talk to your charity and trust clients. The donation tax credit cap and trust distribution rules are significant. Early conversations will help clients restructure before the changes take effect.
- Watch the RMA reform. The Government has allocated $294 million to accelerate Resource Management Act reform. For firms with planning and environment practices, this will create both new work and new compliance requirements.
Budget 2026 does not transform the legal landscape overnight. But the cumulative effect of rising employment costs, shifting legal aid settings and new tax rules for your clients adds up to real change for how you run your practice.
The key positive impact for legal firms will hopefully come if the real GDP growth forecast by Treasury in the budget of 2.3% for FY2027 (Up from 1.2% to June 2026) and 3.2% in FY2028 eventuate. This will help drive transactional activity in the economy which in turn assists with top line growth in large sections of firms (Property, Private Client and Commercial).
At Moore Markhams, we work alongside legal practices across New Zealand. We can assist with modelling your employment costs and budgeting assistance or comparing your firm to benchmark and best practice and working on profit improvement strategies. We can also assist with restructuring trust arrangements for clients (a popular restructure at the moment is taking advantage of the 28% company tax rate for investments and deferring the application of the 39% top marginal rate). We also work with litigators and barristers providing business valuations, Section 15 economic disparity calculations and related litigation support Get in touch with your local Moore Markhams adviser.
