Australians are yet to see the benefits of AI and datacentres – and US midterms show they could be political kryptonite

When will Australia see the benefits of the AI and datacentre boom? So far, all we’ve seen is the possibility of changes to copyright which would hurt Australian creatives, special rules about power and water use, and the threat of mass displacement or replacement of workers, with the trade-off being a mere 10% chance of human extinction.

Now add the Reserve Bank’s assessment this week that datacentres were part of growing “inflationary pressures” when lifting interest rates to an 18-year high.

Warnings about looming negatives have been coming for months, but even the RBA has no idea when to expect the positives. And, as the results of the US midterms show us, datacentres are becoming political kryptonite for voters not sold on the AI boom, meaning the Albanese government should tread carefully.

As Labor mulls its long-awaited plan to attract AI investment, this week’s RBA decision demands politicians better explain what the benefits of this rollout will be, and why it is worth the (hopefully short-term) pain. It also requires the government to consider other inflation responses, beyond the RBA.

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The governor, Michele Bullock, warned “some pain now will prevent even worse pain” in the future. But why should ordinary workers endure pain that is not of their own making?

Some of the richest companies in the world are helping heat the economy to such an extent that Bullock flagged it in her opening remarks, just moments after pointing to global oil prices, low productivity and expectations of prolonged inflation.

“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,” Bullock said.

The RBA’s statement of monetary policy highlighted that “AI-related investment is driving rapid growth in prices for technology-related goods” in its second paragraph.

But asked when AI would start having a “positive impact on inflation”, Bullock shrugged “your guess is as good as mine”.

She said “if productivity improves dramatically because of AI” – “if”, not “when” – then we would see faster growth, but also warned it could 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,” Bullock said.

Even the nation’s chief economic wonk is hazy on when the benefits start flowing.

These aren’t nimby arguments against datacentres or luddite concerns about technological growth; there are serious economic questions to be considered here, and social ones already being examined worldwide.

Deloitte Access Economics on Thursday reported 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”, and that Australia had “less room to absorb” the investment surge thanks to high inflation.

Deloitte reported “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 is largely imported goods and few workers are needed to actually staff the facilities.

Of course the datacentre boom will support AI takeup, greater automation and productivity, but Deloitte warned: “Construction demand and inflation pressures are arriving now, while the productivity dividend may come much later.”

In the wake of RBA warnings about demand, much media focus has naturally turned to government spending. Press gallery pundits have zeroed in, particularly, on green subsidies and home batteries; the shadow energy minister, Dan Tehan, blasted a “blowout” from a budgeted $2.3bn to $8.5bn.

That’s $6.2bn more than budgeted. Or, in another way, 4% of the total $141bn datacentre investment.

Or 16% of the growth in datacentre investment in just one year.

Economics and finance, like politics, is a series of choices. If everything is on the table for savings, as Labor has said, shouldn’t we consider the benefits of untrammelled investment in AI factories before we start slashing social programs achieving good?

This week’s datacentre backlash in the United States is instructive. Politico recently reported polling showing half of Americans oppose datacentres near their homes; NBC exit polls found 56% of voters said AI and datacentres were “crucial” or “major” factors in the midterms. Datacentres were also literally on the ballot in dozens of towns, with public votes overwhelmingly won by proposals to restrict construction, according to vote trackers.

The Australian backlash is much smaller, but growing. Community groups are organising and protesting. Labor should not overlook bubbling voter unease.

So what to do instead? Beyond leaving it to the “blunt instrument” of monetary policy for the RBA to smash the economy, there are other options Labor could consider. They are novel, but the times demand novel solutions.

Senator David Pocock has 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 has 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, again, suggested taxes on windfall profits and gas exports to take more cash out of the economy.

Of course we need new AI and datacentre investment, particularly as the government looks for a magic bullet to end stagnant productivity. But the government has so far struggled to make the case for how this new technology will benefit ordinary Australians, who are left with a feeling of uncertainty and a hole in their back pocket.