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June 29, 2026 — 5:15am
Commodity booms have been a huge part of Australia’s economic fabric and sometimes even the national identity. Think of the 19th-century gold rushes that sparked mass immigration, the post-Second World War period where the wool trade was so important it was said we were “riding on the sheep’s back”, or the massive China-fuelled resources boom of earlier this century.
Lately, however, there’s another spending surge that’s got the economic world talking: the explosion in plans to build big sheds full of computers.
Investment in data centres could rival the size of past mining booms, and the government is keen on attracting this money to Australia, albeit with conditions. Westpac estimates it’s a $155 billion pipeline: an enormous sum.
But looking beyond the mammoth numbers, how much does this bonanza really help the economy? Don’t huge booms often cause economic headaches as well as gains? How can we avoid those pitfalls this time around?
When there’s a huge spending spree, it inevitably helps the economy to some extent, but don’t be misled by the huge numbers on data centres. I’m not convinced the economic benefits are as great as they may seem. There are also lessons we can learn from past resources booms, which gave the economy a short-term boost but also left us with longer-term problems.
First though, there’s no denying the scale of data centre spending. HSBC reports that Australia’s data centre investment is either fourth- or sixth-highest in the world, depending on how it’s measured. IT companies’ spending on equipment soared to a record high of $11.8 billion in the year to March.
So many data centres are being built, or at least planned, because tech companies are betting we’ll need them to meet soaring demand for artificial intelligence. Australia is an attractive place to build them because of the space, the potential to power them with green energy, relative proximity to Asia, and the security environment.
So, what does the data centre boom mean for the wider economy?
Assistant minister for science, technology and the digital economy, Dr Andrew Chartlon, argued this month Australia was once again the “lucky country” with the data centre boom, as we’ve been with resources.
On the positive side of the ledger, Charlton, an economist, pointed to the gains from business investment and jobs, but also conceded these aren’t all that great.
Much of the technology is being bought overseas, so while there is some local benefit from the investment into these facilities, the effect on gross domestic product is not as big as the headline investment figures.
There’s also a short-term benefit for employment. Building the centres will require labour, though Charlton also conceded that once they’re up and running data centres will employ “remarkably few people”.
Even so, Charlton says, the main economic benefit of data centres is not really about “what happens in the shed,” but rather “what they make possible everywhere else”. As in, the government believes the real economic magic from data centres will occur when more businesses find ways to use AI to become more productive, or entire new businesses are launched.
This is where those claimed benefits get a lot harder to prove or disprove, because who really knows if AI will deliver the productivity gains its boosters are predicting?
It’s also not obvious that having huge numbers of data centres located in Australia makes businesses here any more likely to find productivity-enhancing ways to use AI. The government, however, maintains that in a digital economy, there’s an advantage in nations having their own computing power here to develop AI “under their own laws, for their own purposes”.
Finally, Charlton argues the data centre boom could help to accelerate the transition to green energy, so long as the power-hungry centres were required to organise their own renewable energy.
What about the downsides?
In fairness, Charlton acknowledges many of these, including the fact data centres consume enormous amounts of electricity and water. If not property managed, this hunger could result in consumers paying more for electricity, it could derail green energy goals, or it could cause water bills to jump. The government has said it expects new data centres to bring enough new green power to offset their electricity demand: this expectation must be turned into reality.
The local effect of data centres - including noise, the visual impact, and putting them near people’s houses or schools - is also a real cost for the community that can’t be ignored.
And there’s the classic economist question - what about “opportunity cost”? What else could we do with the resources, instead of building warehouses full of computers?
If the boom is as big as many expect, the electricians and builders needed to build the data centres will need to be drawn away from other activities, such as say, building homes to address the housing shortage, thereby adding to cost pressures.
These are legitimate concerns that go to the economy’s capacity. As we’ve seen with past mining booms, the demand for skilled workers can flow into higher costs elsewhere.
Other economists have other reasons to be sceptical about the data centre boom.
For one, there’s the fact the big AI firms are foreign-owned, which means the profits will largely flow offshore, once the construction phase of the boom has passed. This is largely what has happened with boom in gas exports.
Independent economist Saul Eslake, for example, is doubtful whether it will deliver the tax take that governments have extracted from past mining booms.
No matter how creative their tax structures, miners must pay royalties for the resources they dig from the ground.
He points out that some of the leading players, tech giants such as Meta and Google, have a track record of shifting profits to lower-taxing jurisdictions, resulting in low corporate tax payments when compared with their multi-billion dollar revenues.
What’s more, there’s some chance the AI-driven investment wave won’t live up to the hype of being the monumental game-changer that many expect.
We are still early in the AI journey, but so far, economic studies have not yet shown a big productivity dividend, despite all the hype from AI giants (some of which are about to float on the sharemarket).
All up, it is far from a slam-dunk argument that the data centre bonanza will automatically be some sort of boon for the economy.
That doesn’t mean we should close the door to data centres: the AI boom is happening whether we like it or not.
But it does mean governments should put strict rules on how data centres affect supplies of electricity, water, and their impact on local communities. And we should recognise that the big numbers on data centre investment are not the full economic story.
Maybe Charlton’s optimism will prove right, and we’ll end up being the “lucky country” yet again, this time thanks to a dizzying surge in AI spending.
But this really depends on AI living up to the hype as a productivity game-changer, and that’s a question that probably won’t be answered for years.
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