The Australian government has championed the rapid expansion of data centres as a key component of an artificial intelligence-driven economic revival. However, a closer examination suggests the projected economic payoff may be significantly less than anticipated.
More than $130 billion is planned for data centres and associated infrastructure by the end of the decade. Goldman Sachs estimates that this construction activity will boost GDP growth by a mere 0.3 percentage points, with a potential to become a drag on the economy as the build-out phase concludes. Over the entire period, the total contribution to GDP is expected to be around 1 percent, a figure notably smaller than the peak investment seen during Australia's mining boom, which reached 7 percent of GDP.
A significant portion of the expenditure, estimated by Treasury to be two-thirds, is directed towards imported servers, storage systems, and high-cost AI chips. Unlike the mining sector, which left behind substantial natural resources generating long-term royalties and tax revenues, the economic legacy of data centres remains uncertain. Treasury acknowledges that the return on investment, particularly in terms of export earnings, is not clearly defined.
Australia is set to provide the land, water, and electricity, while foreign technology companies will supply the hardware, control AI models, and repatriate a substantial share of profits. This dynamic has led to concerns that Australia is positioning itself as a "dumb landlord" in the AI revolution.
The strain on domestic resources is also a growing concern. Data centre construction will compete with existing housing and infrastructure projects for essential materials like concrete and electrical equipment, as well as skilled labor such as electricians. This competition could exacerbate existing shortages and bottlenecks.
Furthermore, the operational phase of these facilities is expected to have a minimal employment dividend, as data centres require significantly fewer staff to operate than to build. The Australian Energy Market Operator projects a sevenfold increase in electricity consumption by data centres, from 5 terawatt-hours to 34 terawatt-hours within a decade. This surge will account for approximately 13 percent of the National Electricity Market's supply at a time when coal-fired power stations are being decommissioned and new generation capacity is struggling to keep pace.
Water consumption is another critical issue. Sydney Water has warned that proposed data centres could consume up to 250 million liters of water daily by 2035, representing about one-sixth of Greater Sydney's current supply. The lengthy development timelines for large-scale recycled water infrastructure mean these facilities may place considerable pressure on existing drinking water systems.
While acknowledging that Australia should not shun the AI revolution, experts emphasize the need for a more strategic approach. Simply hosting foreign servers does not equate to a sovereign AI strategy. Without enforceable conditions, there is a risk of nationalizing the infrastructure costs for major tech companies while they reap the primary economic benefits.
Calls are being made for operators to fund their own additional power, water, and grid connections to prevent local communities from subsidizing private tech monopolies. There is also a push to secure guaranteed computing access for local startups and researchers as a condition for hosting data centre development.
Assistant Minister Andrew Charlton, an economist and former analytics business owner, has voiced concerns about Australia capturing the economic advantages of AI. He advocates for operators to provide Australian startups and researchers with computing access on favorable terms. Charlton's perspective highlights a potential gap between the government's investment figures and the actual realization of economic benefits from the AI revolution.