AI is set to boost productivity and will have a ‘profound’ impact on the jobs market: Treasury

Artificial intelligence (AI) should help Australia achieve its long term productivity target, while having “profound” effects on the labour market.

These are among the conclusions of a detailed analysis of the economic implications of AI prepared by Treasury for Treasurer Jim Chalmers.

As of March, Australia had 162 operational data centres.

Another about 130 centres are proposed, taking Australia to nearly 300 operating or planned facilities.

The government is preparing legislation to cover conditions including requirements for the centres on their energy and water use.

Data centres will have to bring new renewable energy sources although at last week’s National Cabinet Minister Anthony Albanese agreed to give Queensland and the Northern Territory some flexibility on this.

While the Treasury analysis is generally positive, it is also hedged with uncertainty about the longer term implications of a technology that is still in its early stages.

The analysis says that on current evidence AI will support its assumption of a long term growth in productivity of 1.2% annually.

But it won’t be able to do it alone.

In 2024–25 labour productivity declined, and over the past decade it has been mostly flat.

“Reaching the long term productivity growth assumption of 1.2% per annum requires a significant improvement in growth over the transition period,” the paper says.

“The [Productivity Commission’s] quantitative estimates imply that AI will generate some, but not all of the baseline productivity growth in Treasury’s assumption.” But there are possible risks to this progress, such as trade barriers and geopolitical tensions.

Treasury spells out upside and downside scenarios.

There is a plausible upside scenario in which high rates of AI-driven innovation at the global frontier and its diffusion to Australia lift long-term productivity growth to within the range of 1.5–2%.