Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 596

The case for Australian AI

Australia needs a sovereign artificial intelligence (AI) capability. It must be developed in Australia and built on Australian data. It must be AI for Australian questions and Australian problems. It needs to embody Australia’s values, geography, and economy. Downloading a foreign model and fine-tuning it undermines our economic future, because it doesn’t build Australian capability. If Australia is to control its own destiny in an AI-enabled future, it must build its own infrastructure, not rent it from overseas. Creating an Australian AI capability is the first critical step in the long process of building Australia’s AI economy. Having Australian capability will develop exactly the skills, experience, and capability in AI that Australia needs to drive its transition to an AI-enabled economy and set us up to build a better one.

Background

AI is the technology of our time. It has changed the global economy permanently, yet its primary impact is yet to come. Businesses that engage in the transformation will improve their productivity and out-compete those that don’t. The larger opportunity that AI offers, however, is to develop entirely new business models.

Various economic reports put the potential value of AI to the Australian economy over the next decade at more than $300 billion. AI is not an emerging technology, or about to descend through the downside of the hype cycle. It is creating far too much economic value right now for that.

Uber, Google, Facebook and TikTok used AI to build global business models that have changed the Australian economy permanently. AI-enabled global businesses will continue to outcompete existing industries over the coming decades. The Australian tax base will shrink, and Australian productivity will continue to decline, unless we compete. This comes at a time when our economic complexity is shrinking, and our population is ageing. We need Australian businesses that use AI to address new global markets if we are to maintain our GDP per capita, let alone grow it.

Large Language Models (LLMs) like ChatGPT are a critical tool for existing companies and startups that want to develop AI-enabled business models. As a result, they have become critical infrastructure for nations wanting to make the transition to the AI-enabled economy. Australia needs AI that reflects its culture, data, and values if it wants to retain economic and cultural sovereignty. The countries we compare ourselves against have already made this step.

AI and global markets

The five largest companies in the world are AI companies. The revenue of the smallest of the five (Amazon) would see it placed at number 25 in the list of nations ranked by GDP. This puts it above 152 countries including Ireland (population 5 million), Norway (population 5 million) and Austria (population 9 million). Amazon has 1.2 million employees, slightly smaller than the population of Adelaide. AI is driving unprecedented value creation globally and will continue to do so.

The founders of Google didn’t inherit a small Internet search engine and make incremental improvements. Larry Page and Sergey Brin were doing PhDs at Stanford and realised that Internet search could be framed as a matrix inversion problem. They started an Internet search engine on this basis, and it was better than its competitors. This meant they attracted more traffic, which gave them more data, which allowed them to improve their algorithm further. Before long they had an insurmountable advantage in search, which they leveraged into online advertising. It is critical to their model that each additional search customer, and each additional advertisement, have almost zero marginal cost to the business. The accuracy and scalability of the model undermined the viability of classified advertising globally, and thus the business model of most newspapers. It had a similar impact on television.

The founders of Uber realised that there was a misalignment of interests between taxi drivers and passengers, and a lot of unused capacity in privately-owned vehicles. They used AI to enable drivers and passengers to connect and undermined the taxi industry’s business model as a result. The taxi drivers were protected by legislation, and by the physically and geographically focussed nature of their business. The value of a taxi licence is now less than 10% of what it was pre-Uber. Uber make 30% of every transaction and have almost zero marginal cost.

The challenge for many incumbent businesses is whether they want to be Uber, or Uber drivers.

Value proposition

The value in AI is not chatbots. The value is in the fact that AI enables existing business problems to be solved with far less training data, and far more quickly, than has been possible previously. It has thus removed the moat that many existing businesses depend upon. The truly disruptive value in AI is that it enables solving new problems that would have been considered impossible previously. Some of these new solutions enable global businesses. This is a great opportunity for Australia to transition to a more complex, productive, and modern economy.

Australians need to be able to use AI without sending data to foreign countries or companies, and without leaking IP. More than this, building Australia’s sovereign AI capability is the first step towards joining the modern global AI-enabled economy. If Australia does not develop its own capability, it will perpetually need to download this critical infrastructure from overseas. In developing our own infrastructure, we build the skills and experience required to create AI-enabled global businesses in Australia.

 

Professor Anton van den Hengel is the founding Director of The Australian Institute for Machine Learning, a Chief Investigator of the Australian Centre of Excellence in Robotic Vision, and a Professor of Computer Science at the University of Adelaide.

 

  •   29 January 2025
  • 3
  •      
  •   

RELATED ARTICLES

Is the iPhone nearing its Blackberry moment?

Welcome to Firstlinks Edition 591 with weekend update

It's time small and mid-caps play catchup

banner

Most viewed in recent weeks

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 636 with weekend update

A new academic study shows that almost all Australians agree that there is a housing crisis yet we can’t agree on how to fix it and are sharply divided along generational and ideological lines.

  • 6 November 2025
  • 21
Taxation

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Taxation

Taking from the young, giving to the old

Despite soaring retiree wealth, public spending on older Australians continues to rise. The result: retirees now out-earn the young, exposing structural flaws in the tax system and challenges for fiscal sustainability.

Investment strategies

An obsessive focus on costs may be costing investors

As a relentless fee war grips Australia’s ETF market, investors may be missing the real battleground. Beyond basis points, index design itself - not cost - may be the most powerful driver of returns.

Taxation

Clearing up confusion on how franking credits work

It seems the mere mention of franking credits generates a lot of heat but not much light. Here's a guide to how franking credits work, and the impact they have on both companies and shareholders.

Investment strategies

Are the good times about to end?

As the bull market revs up, some investors worry about a possible correction. History shows the real question isn’t timing the top, but whether you have the time and liquidity to ride out inevitable downturns.

Superannuation

Australia slips in global pension ranking

The 2025 Mercer CFA Institute Global Pension Index shows Australia has dropped to its lowest ranking in the 17 years of the index. This explores why we're falling and what can be done about it.

Property

Where wine country meets real estate

High-profile wine regions don’t always see strong property growth - volume, exports, and infrastructure investment often matter more than reputation in driving regional property markets.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.