A map of Australia filled with an Australian flag among digital cubes and binary code (Orhan Turan/Getty Images Plus)

Reducing dependence on foreign cloud providers and fostering a competitive domestic ecosystem (Orhan Turan/Getty Images Plus)

The public goods case for Australia’s digital sovereignty

The budget was a missed opportunity to tackle the technology transformation dilemma presented by AI.

Marina Yue Zhang

2 April 20253 min read

In a world where AI is rapidly reshaping sectors from healthcare and clean energy to manufacturing and defence, it was puzzling to note the absence of new funding for AI development or digital infrastructure in Australia’s 2025 budget released last week. Not only does this reveal a significant policy gap but it could undermine Australia’s future economic sovereignty and innovation potential.

Australia remains largely a consumer of global digital ecosystems, with little influence over the rules that shape the technology landscape. Local startups have flourished by building applications on multinational infrastructures, yet this reliance limits the nation’s ability to create competitive platforms that capture network effects and drive systemic change.

Consequently, Australia’s capacity to develop and control its own digital infrastructure is constrained by its dependence on foreign cloud services and externally set technological standards. This dependence creates a form of “digital colonialism”, whereby external entities dictate both technological and regulatory frameworks in sectors essential to the nation’s economic security. The issue of data sovereignty becomes increasingly urgent as data generated on Australian soil fuels innovation and informs policy decisions across healthcare, energy, agriculture, and defence.

Australia can help bridge the “valley of death” that prevents promising technologies from reaching commercial viability.

The omission of fresh funding for AI and digital infrastructure in the budget deepens these challenges. The government’s continued reliance on legacy measures including the Research and Development Tax Incentive provides only limited support. By neglecting the AI revolution, the budget reinforces a status quo that hampers Australia’s ability to transition from a market of standalone applications to one powered by integrated, homegrown digital platforms. The challenge is not the absence of breakthrough innovations – exemplified by the CSIRO’s pioneering work with WiFi – but rather the inability to translate these successes into global platforms that generate sustained economic benefits and significant spillover effects.

Australia should develop a national digital infrastructure – a comprehensive “AussieCloud” that integrates data centres, biofoundries, and AI supercomputing labs. This public good would not only enhance cybersecurity but also provide a reliable foundation for innovation, reducing dependence on foreign cloud providers while fostering a competitive domestic ecosystem.

Funding mechanisms must also be expanded to support high-risk, high-reward platform research and development. By broadening the remit of initiatives such as the National Reconstruction Fund and reintroducing government-guided venture capital models like the Innovation Investment Fund, Australia can help bridge the “valley of death” that prevents promising technologies from reaching commercial viability. Complementary measures, such as establishing specialised technology accelerators within universities, would further catalyse the transition from proof-of-concept to market-ready innovation.

It is well understood that addressing the talent gap is essential for sustaining digital transformation. A coordinated national strategy is imperative to bolster digital skills, spanning areas from quantum engineering and computational biology to AI ethics. Reforms in visa policy and the implementation of robust retention programs can attract and retain both global experts and domestic talent, ensuring that Australia has the human capital necessary to drive innovation and maintain a competitive edge in the digital era.

Moreover, Australia has a unique opportunity to integrate its traditional industries into modern digital supply chains. By leveraging its strengths in critical minerals, the nation can develop regional value chain platforms for mining and manufacturing reminiscent of Germany’s Industry 4.0 servitisation model. Harnessing renewable energy resources to create a Southern Hemisphere AI hub would not only benefit domestic sectors but also position Australia as a key player in supporting the digital transformation of neighbouring Southeast Asia.

To complement such measures effectively, Australia must engage in shaping international technological standards. Active participation in global bodies such as ISO/IEC and ITU would allow the country to influence the development of protocols that govern emerging technologies and AI governance frameworks. By taking a leadership role in standard-setting, Australia can ensure that its interests are protected and that its innovations are not sidelined in the global digital economy.

The chance missed in this budget reinforces Australia’s dependency on foreign technological ecosystems and jeopardises its ability to secure data sovereignty, drive innovation, and maintain economic autonomy in a competitive global landscape. If Australia is to harness the potential of the digital revolution and secure its global standing, it must choose to lead rather than merely follow – leveraging its research excellence to transform its digital landscape from a fragmented collection of applications into a cohesive, sovereign platform ecosystem.

About the author

Marina Yue Zhang

Dr Marina Yue Zhang is an associate professor at the Australia-China Relations Institute, University of Technology Sydney (UTS: ACRI).

Topics

Australia Cyber & technology