Deloitte counts 37 Australian datacentres worth $141bn
The Reserve Bank said datacentre-related investment had added to inflationary pressures in Australia as the central bank raised interest rates to an 18-year high. In a Guardian Australia analysis, Josh Butler said Governor Michele Bullock described stronger-than-expected investment as adding to demand in an economy already constrained by capacity.
Bullock warned that “some pain now will prevent even worse pain” in the future. She also pointed to global oil prices, low productivity and expectations of prolonged inflation. The Guardian analysis said some of the richest companies in the world were helping heat the economy at a time when demand was already running above expectations. Butler asked why ordinary workers should bear pain not of their own making.
In her opening remarks, Bullock said: “Parts of demand have also been stronger than expected. In particular, investment has been much stronger than expected, including due to datacentre-related investment. This has added to inflationary pressures by adding to demand at a time when the domestic economy is already capacity constrained.”
The Reserve Bank’s statement of monetary policy highlighted the same point in its second paragraph, saying that “AI-related investment is driving rapid growth in prices for technology-related goods.” Asked when AI would begin having a “positive impact on inflation,” Bullock replied, “your guess is as good as mine.”
She said “if productivity improves dramatically because of AI,” there would be faster growth, but warned that it could also increase the “neutral interest rate.” “So if people think that productivity improvements will help to lower inflation and keep interest rates low, that’s not necessarily the case,” she said.
The Guardian analysis noted that warnings about the datacentre boom’s looming negatives had been coming for months, but that even the Reserve Bank had no idea when to expect the positives.
On Thursday, Deloitte Access Economics reported that Australia’s $1.39tn investment pipeline included 37 datacentres worth $141bn, a 36% increase in a year.
Deloitte director Sheraan Underwood said the datacentre boom was “competing directly with housing and infrastructure for workers and materials.” She said Australia had “less room to absorb” the investment surge because of high inflation.
Deloitte reported that “the economic dividend may take time,” predicting “substantial” construction gains but that the “direct economic payoff” wouldn’t be as big. The technology fit-out was largely imported goods, and few workers would be needed to staff the facilities. Deloitte said the boom would support AI adoption, greater automation and productivity, but warned: “Construction demand and inflation pressures are arriving now, while the productivity dividend may come much later.”
Butler wrote that Australians had yet to see benefits from the AI and datacentre boom. He said what had emerged was the possibility of copyright changes that would hurt Australian creatives, special rules about power and water use, and the threat of mass displacement or replacement of workers. He described the trade-off as a “mere 10% chance of human extinction.”
Butler also asked whether, if everything is on the table for savings as Labor has said, the benefits of what he called “untrammelled investment in AI factories” should be considered before slashing social programs that achieve good. He wrote that these were not “nimby arguments against datacentres or luddite concerns about technological growth” but serious economic questions, with social ones already being examined worldwide. As media focus turned to government spending, particularly green subsidies and home batteries, shadow energy minister Dan Tehan attacked a “blowout” from a budgeted $2.3bn to $8.5bn. Butler calculated that the $6.2bn increase represented 4% of the total $141bn datacentre investment, or 16% of the growth in datacentre investment in one year.
The Guardian analysis said the US midterm results showed datacentres becoming “political kryptonite” for voters not sold on the AI boom, meaning the Albanese government should tread carefully. Politico reported polling showing half of Americans opposed datacentres near their homes. NBC exit polls found 56% of voters said AI and datacentres were “crucial” or “major” factors in the midterms. Datacentres appeared on ballots in dozens of towns, and vote trackers said voters overwhelmingly backed proposals to restrict construction.
The Guardian analysis said the Australian backlash was much smaller than the US response but was growing, and that Labor should not overlook bubbling voter unease. Community groups were organising and protesting. The analysis said that, as Labor mulls its long-awaited plan to attract AI investment, this week’s RBA decision demands politicians better explain what the benefits of the rollout will be and why it is worth the (hopefully short-term) pain. It also said the government needs to consider other inflation responses beyond the Reserve Bank.
The analysis said that beyond leaving it to the “blunt instrument” of monetary policy, there were other options Labor could consider. Senator David Pocock proposed a Senate committee to investigate “alternatives” to monetary policy, suggesting options including “temporary, progressive” changes to income tax or superannuation. Independent economist Saul Eslake said a small rise in superannuation rates, from even 12% to 13%, would take some money out of workers’ pockets and help curb spending. Pocock also suggested taxes on windfall profits and gas exports to take more cash out of the economy.
Butler said Australia still needed new AI and datacentre investment, particularly as the government looked for a way to address stagnant productivity. He said the government had struggled to make the case for how the new technology would benefit ordinary Australians, who were left with uncertainty and a hole in their back pocket.