Australia must invest in homegrown AI now or risk economic irrelevance

Australia is on a fast track to becoming a “global laggard” in artificial intelligence (AI), with the Federal Government urged to act now to nurture local AI industry growth and strengthen sovereign AI capabilities, protecting national security and driving broader economic growth.

Australian AI developer Trellis Data has backed a recent pre-Budget 2025-26 submission from the tech industry peak body, the Australian Information Industry Association (AIIA), which argues that Australia’s future economic prosperity, productivity growth and security hinges on adequate Government investment in this fast-emerging technology.

The submission highlights the nation’s dearth of investment in the local AI industry, particularly when compared against other developed economies, as well as the risk of our dependence on unsecured foreign-developed AI models.

For instance, the AIIA notes that both Canada and Singapore have made substantial financial commitments ($2.7 billion and $5 billion, respectively) towards AI development and adoption.

So far, the peak body argues, the Australian Government has “avoided making any significant investments” in AI.

Not a single AI-focused research project will receive funding from the 2026 Australian Research Council Centre of Excellent (CoE) grants, the AIIA says, “exposing a fundamental flaw in Australia’s approach to supporting AI innovation”.

This lack of strategic investment and research funding in AI will ultimately threaten Australia’s “economic competitiveness, productivity and social equity”, it argues.

Professional services group PwC predicts that AI could deliver an up to 26% boost to the GDP of economies worldwide. This would see an additional $15.7 trillion added to the global economy by 2030 – more than the current output of China and India combined.

As well, both the AIIA and CSIRO-backed Trellis warn that Australia risks undermining its national security without a “secure, sovereign” AI capability. Following the Australian Government’s recent banning of the Chinese-developed large language model (LLM) DeepSeek R1 – which boasts similar capabilities to the US-developed ChatGPT model – within the public sector citing “unacceptable risks”, Trellis stresses that Australia cannot rely on nor fully trust foreign-developed AI models and must work to develop its own.

“Australia can’t afford to always rely on foreign AI that we neither control nor fully trust,” writes Michael Gately chief executive of Trellis Data.

“We need sustained investment in Australian AI companies to ensure our data remains secure, our AI capabilities remain competitive, and our economy benefits from homegrown innovation.”

He believes the Federal Government can and should “lead the way by actually adopting and utilising more home-grown AI solutions”.

“A strong, sovereign AI sector isn’t just an economic advantage – it’s a national security imperative,” Gately said.

For AIIA chief executive Simon Bush, the Budget presents an “urgent opportunity” to provide meaningful funding for AI research, including via a dedicated AI Centre of Excellence (CoE) backed by industry and focused on translating research into commercialisation and adoption.

“Without significant investment, we risk becoming an unattractive destination for technology businesses, leading to lower productivity and economic stagnation and loss of deep research AI skills.

“The Albanese Government needs to urgently rectify this, or risk Australia being left behind in the global AI race,” Bush said.

The AIIA has called for at least $150 million in initial funding for the CoE to support fundamental AI research and commercialisation opportunities. This, it said, would also serve to separate the tech funding process from the “flawed” Australian Research Council ARC grant process, which “omits any software-related technology and AI research”.

As well, the AIIA wants Australia’s focus to be on “creating AI” (fundamental research and development), which is differentiated from “using/customising AI” (application to solve sector-specific problems).

Among its 10 recommendations to Government the AIIA has called on policymakers to a) support AI adoption by Australian businesses, “ensuring they remain globally competitive while maintaining ethical AI standards”, b) commercialise and unlock deidentified public datasets, c) fund digital cadetship and digital skills building, supporting the transition of workers to the modern economy, and d) accelerate the rollout of the National AI Capability plan objectives to address the AI research funding gap.