Australia is currently facing a growing economic challenge tied to its reliance on foreign-developed artificial intelligence models, with a senior Labor government official warning that annual outbound payments for AI services could surge to as much as $40 billion within a decade without targeted local industry intervention.
Assistant Science Minister Andrew Charlton will outline the Albanese government’s plan to nurture a domestic AI ecosystem and roll out a new national AI standard during a major address at the Australian National University’s Crawford School of Public Policy this Tuesday. His speech comes one month after Prime Minister Anthony Albanese launched a suite of world-leading policy measures, including a dedicated national Office of AI and formal guidelines for local data centre development.
While Charlton is a vocal advocate for widespread AI adoption across Australia, telling audiences this week that Australians should “adopt AI everywhere we can” to unlock productivity and national output gains, he is also sounding the alarm on the growing cost of the country’s current dependence on foreign AI providers. New data set to be shared in his speech shows 20% of Australian households already hold paid AI subscriptions, and one in three Australian businesses pay for external AI services. When combined, these payments add up to between $5 billion and $8 billion in annual AI spending by Australian users – almost all of which flows offshore to foreign technology companies. Without policy action, that annual outflow could jump to $40 billion within 10 years, a sum Charlton describes as “one of the largest recurring outflows in the Australian economy”.
Currently, Charlton argues, Australia is occupying the lowest value tier of the global AI supply chain. But the country can leverage its recent success attracting international data centre investment to capture a larger share of AI sector value, he says. The next critical step is to build out a domestic AI training ecosystem that leverages Australia’s data centre boom to strengthen local access to artificial intelligence computing power. Expanding this ecosystem will allow Australia to retain, grow, and attract top-tier AI research and entrepreneurial talent, which will in turn drive private-sector led economic growth, strengthen national digital sovereignty, and deliver long-term returns for the country without excessive government intervention, according to Charlton.
The government’s new national AI standard includes a requirement that data centre providers seeking to develop infrastructure in Australia grant affordable, favorable access to computing resources for Australian startups, innovative small and medium businesses, academic researchers, and not-for-profit organizations – including local AI developers and domestic AI-focused businesses.
Twelve months ago, most industry experts argued that middle-sized economies like Australia had no realistic path to compete in the global AI frontier, where the market was dominated by a small handful of U.S. technology labs with capital budgets larger than the GDP of many small countries. The conventional wisdom held that Australia’s best strategy was simply to adopt foreign AI quickly and negotiate good purchase terms. But the landscape has shifted dramatically over the past year, Charlton says. The rise of open-weight AI models now sees near-equal adoption with closed proprietary models, while the cost of developing competitive AI capabilities has collapsed, creating a far more competitive global market. As a result, capabilities that seemed entirely out of reach for Australia just one year ago – both for commercial and strategic purposes – are now well within reach, and this trend is expected to continue.
Australia already holds unique competitive advantages to build a strong domestic AI sector, Charlton notes. The country is home to more than 1,500 AI-focused companies, has established global leadership in AI applications for high-value sectors including medical imaging, agriculture, mining technology, fintech, and quantum computing, boasts world-class public research institutions, and holds high-quality datasets in sectors where Australia already leads globally.
In the coming weeks, the government will make additional announcements related to AI development through the National AI Centre, with further work underway by Charlton and Finance Minister to address Commonwealth chief information officers on the topic later this year. A core pillar of the government’s strategy is turning Australian data into Australian economic value, Charlton says. Sectors from agriculture to resources generate unique, valuable Australian data, while local creative output constitutes valuable intellectual property – all of which are national assets, he argues. Rules around ownership, licensing, and public procurement will determine who captures the value of these assets, which is why Prime Minister Albanese was correct to reject calls to weaken the intellectual property rights of Australian creators as a condition for foreign investment. “Our data and our creative work are national assets, and assets are licensed, not surrendered,” Charlton will say.
Charlton emphasizes that Australia does not need to choose between boosting productivity through AI adoption and capturing local value from the sector – it needs both. “GDP tells us how much Australia produces. But our prosperity depends on how much of the resulting income Australians receive,” he will note. “Adopt AI everywhere we can, to lift the productivity of Australian workers and Australian businesses. That sets the size of the prize. Second, build around it. Create the companies, the capabilities, the intellectual property and the complementary assets that ensure Australians capture a meaningful share of the value AI creates. That sets our share of the prize.”
Looking back at Australia’s economic history, Charlton points out that the country has long welcomed global capital investment, but has always leveraged its own unique assets to build domestic capacity and climb the value chain. “Our task in the age of intelligence is to do it again,” he will say.