Confederation of companies reflects AI demands in federal budget

Welcome to Neural Notes, a weekly column looking at how AI is impacting Australia. In this edition, new pre-budget proposals from a coalition of industry bodies test the ambitions of Australia’s national AI plan.

Last year, AI was not mentioned once in the federal budget document. This was striking at the time, especially given the government’s massive song and dance about the matter in the previous two years.

But as I said at the time, the 2024-2025 budget was AI-heavy. Many of the policies decided for late 2025 were already being considered, from the AI regulatory roadmap and consultation on high-risk AI to draft legislation, public sector regulation and the long-awaited national AI plan.

When the Albanon government announced its plans in December, it made careful choices about how to frame the country’s AI future. Connecting AI to productivity, sovereign capabilities, and the broader field. The future of Made in Australia agenda.

It also stopped short of introducing a standalone AI law, relying instead on existing legal frameworks, voluntary guidance, a planned AI safety association, and a series of already announced programs and funding streams.

It also scrapped a proposed AI advisory body.

Over the past year, the government has also updated the Australian AI Plan for Public Services and guidance on the use of AI in government, quietly transferring much of the governance work to the public sector itself.

It ruled out some of the bolder options being considered internationally, such as broad text and data mining exceptions, and instead emphasized licensing and sector-specific enforcement.

One of the more obvious tensions at the time was that despite government talk about the big picture, practical support for businesses (particularly small and medium-sized enterprises) was limited.

Although the National AI Plan reiterated that small businesses are at the heart of adoption, much of what is written relates to existing programs rather than new support.

We also presented a very confident story about where Australia is today.

The government points to high consumer acceptance, more than 1,500 local AI companies, approximately $700 million in private investment in AI companies in 2024, and approximately $10 billion in data center investment in the same year, making Australia the world’s second-largest travel destination.

Additionally, he highlighted that more than $460 million has already been committed across AI and related initiatives. This includes research grants and accelerator programs from the National Recovery Fund, as well as research and development tax incentives.

Business shifts focus to economics

This situation makes the 2026-27 pre-budget proposal by a coalition of industry groups particularly interesting. This is a clear indication of the kind of economic environment that some in the industry believe is still missing.

“Australia is participating in a global competition for capital and we must be in a position to acquire more capital,” the submission says.

It also warned that without increased investment, “Australia risks falling back, with fewer high-quality jobs, slower wage growth and less influence over our country’s future”.

Rather than focusing on safety and governance, they are pushing more familiar policy tools onto governments, such as research and development, commercialization, skills, investment settings, and infrastructure approvals.

In fact, this alliance is calling for:

Raise national R&D investment from 1.7% to 3% of GDP
Review of research and development tax system
Creating a National AI Skills Compact
Accelerate data center and digital infrastructure approvals
Making Australia a more attractive place to invest in AI and other emerging technologies

Some of these are part of a broader wish list for reforms that span productivity, planning and taxes.

But they also uneasily echo the government’s narrative that capital is already flowing in, infrastructure is booming and Australia is well on its way to becoming the AI hub of the Indo-Pacific.

Indeed, the National AI Plan recognizes many of the same components. This highlights strong research capabilities, increased private investment, and a growing pipeline of data center projects. It also frames the role of government in setting the right conditions for adoption and growth.

But in reality, the focus is still on adjustments and existing programs rather than new ways to engage the business.

Its flagship initiative, the $30 million AI Safety Institute, joins more than $460 million in funding previously committed, including support for the National AI Center and AI Adoption Program. Much of that support is aimed at helping companies use AI, rather than changing the conditions underlying AI investments.

In comparison, a coalition of industry associations is pushing for more formal and targeted interventions, such as the inclusion of national AI skills compacts and explicitly “pro-investment” and outcomes-based regulatory settings.

The report also takes a more direct look at the problem, noting that “productivity growth remains weak, business investment remains subdued, and regulatory and structural barriers continue to constrain economic performance.”

It’s also worth noting who each document actually speaks to. The National AI Plan dedicates significant space to workers, unions, and inclusion, and positions AI as something that should be widely shared. The Alliance’s recommendations, on the other hand, are framed firmly through the lens of investment and competitiveness.

What does it mean for small businesses?

For small businesses, the difference is more tangible.

The plan itself states that more than a third of small and medium-sized enterprises have adopted AI, with lower adoption rates in rural areas.

There is support available through the National AI Center and associated advisory programs. But most of them are simply aimed at helping businesses use AI tools. On the other hand, they must overcome start-up costs, skills shortages, and associated infrastructure constraints.

The Alliance’s proposal effectively claims that these constraints are the real bottlenecks. And unless tax settings, skills pipelines, and investment conditions change, recruitment is likely to remain uneven.

The question is whether we will see more AI in these budget proposals. It’s hard to say as the Iran war continues and a fuel crisis grips the country. But what is clear is that the debate is no longer just about how Australia will manage AI, but whether it is actually prepared to create an enabling environment for businesses to invest in AI.

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