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

Active managers: Bringing a gun to the gunfight

Don’t underestimate Australia

Shares rebound on hopes of war ending, but stalemate the likely outcome

banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

Latest Updates

Exchange traded products

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

Taxation

Will investors be better or worse off under new housing tax changes?

Housing tax reforms have sparked warnings of market turmoil and promises of greater fairness. But after modelling nearly two decades of property data, the results suggest winners and losers may not be who many investors expect.

Retirement

Three considerations before reshaping your legacy plan

Many retirees hope to leave a legacy. Proposed trust tax reforms could force families to rethink. The question is not how much to leave behind, but whether today's inheritance plans will still make sense as circumstances change.

Investment strategies

Why experienced investors still get markets wrong

Retirement is approaching. Markets are noisy. And every headline seems to demand action. The biggest investment risk isn't fear, greed or market volatility, it often arrives disguised as research and sensible risk management.

Shares

Why pay more for less?

Conditions were stacked in favour of professional investors in 2026. Most still fell short, raising questions about where investors should look for value. Meanwhile, an alternative strategy continued to make its case.

Investment strategies

Bleeding air out of the bubble

Equity valuations have fallen sharply over the past year, yet investors have largely been spared the volatility and losses that typically accompany a de-rating. What explains this unusually orderly reset? Here are five key drivers.

Strategy

Has AI gone rogue?

We worry about AI becoming conscious. But what if consciousness isn't the issue? The more unsettling possibility is a machine capable of pursuing objectives relentlessly, without motives, emotions, or awareness of any kind.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 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.