This month’s federal budget made a familiar promise: artificial intelligence (AI) will help lift Australia’s productivity.
But for many Australian firms, especially small and medium-sized businesses, “using AI” still means experimenting with a generic chatbot to draft emails, summarise documents or write marketing copy. That might save time and lower costs. But it’s unlikely to transform national productivity on its own.
For Australia, the more exciting opportunity sits beyond such generic tools. It is a story of research partnerships, commercialisation pathways, and the developers, researchers and startups that turn AI into specialised solutions.
Measures announced in the budget could make things easier for the AI ecosystem trying to move this vision forward. But there are also concerns about how tax reforms could impact incentives for AI startups, and the abrupt pausing of an existing grant program.
Moving beyond chatbots
AI can’t magically increase Australia’s productivity all by itself. Any gains will come from how people put it to work to solve specific industry problems.
For example, a building company might already be using generative AI to help with tasks like drafting tenders. But they’ll get a larger productivity boost from using more tailored AI to forecast supply chain delays, detect site safety risks and manage their costs and scheduling in real time.
It’s a similar story for agriculture. AI can create real value for farmers when it combines satellite imagery, soil data, weather forecasts and farm records to improve their decision-making.
Existing generic tools aren’t enough for these use cases. They require specialised solutions developed based on deep industry knowledge, AI-ready data and skilled workers.
Michael Currie/AAP
We aren’t starting from scratch
The 2026 budget is not creating Australia’s AI ecosystem from scratch. The federal government’s National AI Centre already tracks more than 1,500 companies nationwide that develop or adopt AI in meaningful ways, and its AI infrastructure efforts have already unlocked tens of billions in additional industry commitments to build AI-enabling infrastructure domestically since June 2025 alone.
The National AI Plan, released last year, brought together more than A$460 million in existing or committed AI-related government funding under one strategy. This includes support for the National AI Centre and the government’s AI Adopt Program, which helps small and medium-sized businesses implement the technology.
However, the challenge for Australia is substantial. Over coming years, thousands of businesses will need help protecting their data, redesigning their workflows and filling skill gaps.
The question is whether aligning existing support with the budget’s new measures will be enough to meet this demand.
Incentives matter
Treating AI adoption as just another off-the-shelf software subscription won’t work for Australia. Businesses need specialised solutions adapted to messy, real-world environments. Startups and scale-ups can play a key role here.
The budget includes measures that could support this pipeline, including:
- revised tax incentives for research and development
- tax loss refundability for early-stage startups
- making the $20,000 instant asset write-off permanent (this lets businesses fully deduct the cost of eligible assets in the same year they purchase them).
The federal government has also used this budget to expand its AI accelerator program, committing up to $70 million in grant funding to help develop local AI capability.
But there are tensions. One of the biggest incentives for taking the risk to start up a new company is the prospect of cashing in if you choose to sell the company (or your shares in it) later. The government’s proposed capital gains tax changes would reduce the tax discount on successful startup exits, even after inflation is accounted for.
And it’s not always just founders who cash in when a company is sold. Startup founders, employees and investors have warned the changes could weaken the incentives young firms use to attract talent and investors by offering them a slice of the company.
They argue the changes could ultimately make businesses less likely to take risks and make Australia a less attractive place to build and back high-growth companies.
That does not mean Australia should abandon tax reform. Housing fairness and innovation incentives are both legitimate policy goals. But consultation on these changes will matter, because such broad tax changes can have unintended consequences.
The Industry Growth Program, which offers matched grant funding to help Australian startups and small and medium-sized businesses commercialise and scale innovative solutions, was also abruptly paused without prior notice. This left bids worth millions in limbo.
The real test
This budget sends a useful signal: turning AI into productivity gains depends on Australia’s local capability, not just access to generic tools.
The real test will be whether its grants, tax incentives and existing support infrastructure are aligned enough to help Australian researchers, startups and businesses develop specialised solutions for local industry problems – without being undermined by tax changes.
The AI Accelerator is one test of that alignment worth watching. Its first $20 million round of funding for industry-led projects connecting businesses and researchers has just closed. But this model matters, because it connects businesses and researchers around commercialisation rather than treating adoption as another software subscription.
The question is not whether businesses can access AI. Most already can. The harder question is whether they can use it to create real value.
