Australians have yet to feel the benefits of AI and data centers

Australia is investing in AI and data centers, but so far residents mainly see rising prices, pressure on the power grid and risks to jobs. The Reserve Bank of Australia linked investment in data centers to inflationary pressure and raised its interest rate to an 18-year high. Asked when the technology would bring benefits, its governor, Michele Bullock, said that was unknown. With protests against data centers in the US, Anthony Albanese’s government will have to explain why the economic and social costs are justified.

Australians have yet to see the benefits of AI and data centers

The costs are visible before the benefits

Australians have yet to see tangible benefits from the AI and data center boom. Instead, debate has focused on possible copyright changes that could harm local creative workers, special rules for electricity and water use, and the risk of mass job displacement. The columnist wryly compares these concerns with the 10% chance of human extinction cited in one discussion.

This week, the Reserve Bank of Australia (RBA) named data center investment as one source of inflationary pressure and raised its interest rate to an 18-year high. The risks have been under discussion for months, while even the regulator does not know when positive effects will emerge. The results of the US midterm elections show that data centers could become a politically toxic issue for voters who have yet to be persuaded of the benefits of the AI boom. In the columnist’s view, Anthony Albanese’s government should tread carefully.

Labor is weighing a long-awaited plan to attract investment in AI. The RBA’s decision makes it more important to explain what these investments will deliver and why the economic difficulties are worth enduring — hopefully, supporters of the plan say, only briefly. The government is also being urged to consider measures to curb inflation beyond central bank decisions.

RBA Governor Michele Bullock warned that today’s difficulties would help avert more severe consequences in the future. The columnist questions why ordinary workers should have to bear consequences they are not responsible for.

At the start of a press conference, Bullock mentioned global oil prices, low productivity and expectations of prolonged inflation, then pointed to an unexpected rise in demand. Investment, including data center-related investment, had been higher than forecast and had added to inflation, she said: demand was growing even as the economy’s domestic resources were already stretched.

The RBA’s monetary policy statement also said that AI-related investment was driving up prices for technology goods. Asked when AI would start to have a positive effect on inflation, Bullock said it was difficult to predict.

Bullock said that if AI significantly raised productivity, the economy could grow faster. But she stressed that this was only a possibility, not a guaranteed outcome, and added that such productivity growth could also raise the neutral interest rate. Higher productivity, then, would not necessarily lead to lower inflation and lower interest rates.

Investment competes for resources

The economic and social consequences of building data centers extend beyond disputes over where to locate them and concerns about technological progress. On Thursday, Deloitte Access Economics reported that Australia’s $1.39 trillion investment pipeline includes 37 data centers worth a total of $141 billion. Their number and value have grown by 36% in a year.

Deloitte director Shiran Underwood said data centers compete with housing and infrastructure projects for workers and materials. High inflation makes it harder for Australia to absorb such a sharp increase in investment.

Deloitte expects a significant impact on the construction industry, but says the direct economic return will be more modest and take longer to materialize. Equipment for the centers’ technology infrastructure is mostly imported, and the facilities themselves require few employees to operate. The company warns that construction demand and inflationary pressure are here now, while productivity gains may come much later.

After the RBA warned of rising demand, media attention shifted to government spending. Parliamentary press gallery commentators focused in particular on subsidies for environmental projects and home batteries. Shadow energy minister Dan Tehan criticized the increase in spending from the budgeted $2.3 billion to $8.5 billion.

The difference is $6.2 billion — about 4% of total investment in data centers. It is also 16% of the increase in data center investment in just one year.

Economic and political choices involve trade-offs between different spending priorities. If, as Labor has said, any budget item can be cut, the columnist argues that the benefits of investment in AI infrastructure should be considered before social programs that serve the public good are reduced.

Opposition to data centers is growing

The US response shows how quickly data centers can become a political flashpoint. According to a poll reported by Politico, half of Americans oppose building such facilities near their homes. NBC exit polls found that 56% of voters called AI and data centers “important” or “key” factors in the midterm elections.

In dozens of US cities, data center construction proposals went to a vote. Results-tracking systems showed that most voters backed proposals to restrict construction.

Protests in Australia are still smaller in scale, but are growing: local community groups are organizing demonstrations. The columnist urges Labor not to ignore voters’ rising concern.

Rather than rely solely on the RBA’s monetary policy, which the columnist calls a blunt instrument, the government could consider other measures. Senator David Pocock proposed creating a Senate committee to examine alternatives to monetary policy. His ideas include temporary, progressive changes to income tax or retirement contributions.

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Source: theguardian.com

Independent economist Saul Eslake proposed a modest increase in the rate of retirement contributions: even raising it from 12% to 13% would reduce the amount workers take home and help restrain spending. Pocock also proposed taxing excess profits and gas exports to withdraw some money from the economy.

The columnist acknowledges that Australia needs new investment in AI and data centers, particularly as the government seeks to overcome stagnant productivity. But so far, the authorities have not convincingly explained what ordinary Australians will gain from the new technologies. Many remain anxious and feel that the costs are already affecting their personal finances.

Dataist's take: The Australian debate highlights the gap between the immediate costs of the infrastructure boom and benefits that remain uncertain. Until the government explains who will benefit from the economic returns, and when, rising investment could fuel public opposition.