Small businesses across hospitality, automotive, tourism and retail are preparing for tougher times ahead after the Albanese Government confirmed it will halve support payments for apprentices in most priority occupations from January 2026.

The changes, tucked inside the announcement extending the Key Apprenticeship Program (KAP), shift significant funding toward housing construction and clean energy trades. It’s all part of the government’s push to build 1.2 million homes and meet net zero targets.

Under the extension, full-time apprentices in eligible housing and clean-energy roles will keep receiving up to $10,000, while employers will continue to pocket $5,000 for each hire until December 2026.

Skills Minister Andrew Giles said the extra year of boosted support would help “target support towards housing and new energy occupations, ensuring a skills pipeline in these nation-building industries.”

He added, “The Albanese Government recognises that employers play a key role in getting more apprentices into critical housing construction and clean energy jobs. This includes carpenters and joiners, plumbers and electricians.”

But it’s what came next that set off alarms across the small business sector.

Giles confirmed that from 1 January 2026, the Australian Apprentice Training Support Payment (AATSP) and the Priority Hiring Incentive,  which support apprentices and employers outside the KAP sectors, will drop from $5,000 to $2,500.

So if you’re thinking about taking on a chef, mechanic, hairdresser, childcare worker, tourism trainee or retail apprentice, the support you get will be sliced in half.

Giles confirmed incentives for apprenticeships already underway before January 2026 won’t be touched.

Small businesses say KAP cuts don’t make sense

Michael Wentworth, managing director of the Sydney group training organisation Apprenticeships Are Us, told SmartCompany the funding cut was a huge blow to small employers.

“That’s devastating to a lot of small businesses,” he said. “It’s short-sighted. It’s unnecessary. I just can’t imagine why they would do that.”

Wentworth, whose organisation works heavily in the automotive repair sector, said the move could prompt many small workshops to pull back on training new mechanics.

“I’ve got over 250 workshops, 80 per cent of them are [in] the SME sector, and a lot of them are reconsidering and saying, ‘Well, without the support, why am I going to make the investment of putting on a first-year apprentice when it’s low productivity?’”

He warned some businesses may be forced to rely on skilled migration or push out service timeframes.

“We’ve got a major issue with trying to find skilled labour in this country, yet we cut the funding for apprentices. It just doesn’t seem to make any sense.”

Hospitality says cuts come at the “worst possible time”

Across the hospitality sector, the reaction is no calmer.

Accommodation Australia CEO James Goodwin told HM Magazine the changes “couldn’t come at a worse time” and would worsen already severe shortages of apprentice and trainee chefs.

“The simple fact is we already don’t have enough chefs to fill demand as it is – particularly in regional areas,” he said.

Goodwin explained that current incentives ($5,000 for the employer and $5,000 for the apprentice across the first two years) are already below what it costs most venues to train a chef from scratch.

“The proposed new incentive structure to operate from 1 January 2026 will see these payments halved,” he said. “It couldn’t come at a worse time with the number of chef apprentices in training already down 10 per cent.”

He warned the cuts would make the shortage “more acute, especially in the regions,” threatening service levels and business viability.

Wes Lambert, CEO of the Australian Restaurant & Cafe Association, also found fault with the planned KAP changes. He posted on LinkedIn that the cuts would make it even harder to train and retain talent, putting unnecessary pressure on the sector.

“At a time when restaurants, cafés and pubs are battling chronic skills shortages, rising wage pressures, and declining training enrolments, removing support for apprentices doesn’t just hurt young people entering the industry. It puts the entire sector at risk,” Lambert said.

“Hospitality doesn’t have a labour shortage problem by accident. It’s the result of policy settings that fail to match the realities of one of Australia’s largest and most essential industries… We should be doing the opposite: investing more in skills, not less.”

ACCI warns of big consequences for non-trade industries

The Australian Chamber of Commerce and Industry (ACCI) welcomed the extension of incentives for housing and new-energy apprentices but warned that the reduced rates for everyone else would hit hard.

The ACCI warned industries already crying out for workers, including hospitality, retail and tourism, are likely to feel the pinch first.

ACCI chief executive Andrew McKellar said in a statement that while priority sectors deserve support, “all industries play a vital role in building Australia’s future workforce”.

“Every employer who takes on an apprentice or trainee is investing in the nation’s skills pipeline and should be recognised and supported accordingly,” he said.

McKellar urged the government to create “a broad, industry-led, outcomes-focused system of apprenticeships and traineeships that supports all sectors of the economy, both trade and non-trade”.

He also renewed ACCI’s call for the Skilling Australia Fund to be ringfenced for its intended purpose: training.

“With the right investment, Australia can ensure a robust, skilled, and diverse workforce for the decades ahead,” he said.

Government says it’s a “hard decision” but the right one

Minister Giles acknowledged the changes would be unpopular but defended them as necessary.

“I’m confident today that we have made the right decision, recognising that it is a hard decision,” he told reporters.

“We’ve struck the right balance as we look ahead to further apprenticeship reform in the coming year.”

Employment Minister Amanda Rishworth added that the government’s broader supports, including Free TAFE, support loans and relocation allowances, will continue to help apprentices finish their training.

“These incentives support a continued strong pipeline of skilled workers in the areas they are most needed, like housing and new energy,” she said.

But for many small businesses outside those sectors, the question remains: how do you maintain your workforce when the cost of training new talent just went up again?

“This just makes it harder for the very people who keep our industries going,” Wentworth concluded.

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