Australia’s tech sector has shrunk for the first time in nearly two decades, a “warning signal” that the country needs to be building its digital economy rather than importing solutions, according to a new report.

Airteam, a custom software development company based in Sydney, released a report this week based on the latest June 2024 ABS data on Gross Value Add, which is how much an industry contributes to the overall GDP.

It found that the tech sector’s contribution to Australia’s GDP fell by 2.6 per cent in 2023-24, despite the overall professional services sector growing by 2.5 per cent.

It marks the first time that the tech sector has declined, based on this statistic, in 17 years, the report found.

According to the research, the tech sector grew by 7 per cent in the previous year, and by 15 per cent, 6 per cent, 9 per cent and 13 per cent in the years prior.

In 2023-24, the tech sector contributed just 1.7 per cent to Australia’s GDP.

‘Warning signal’

According to Airteam executive director of technology Rich Atkinson, this shows a “critical vulnerability in Australia’s digital economy” and makes efforts by federal and state governments to boost innovation across the economy “more critical than ever”.

“This isn’t just a statistical blip – it’s a warning signal,” Atkinson said.

“While large Australian businesses have been importing solutions, other countries have been building their digital economies.

“The result is our $43 billion tech sector contributes just 1.7 per cent of GDP, and now it’s shrinking.”

A recent global study saw Australia decline in its overall tech ecosystem ranking, falling to 12th after peaking at 8th in 2023.

State governments have recently launched efforts to encourage the growth of tech companies, and the general use of tech across the economy.

The New South Wales government released its Innovation Blueprint in April, outlining a plan to create 100,000 jobs in the next decade, 2,000 more innovation-intensive firms and $27 billion in additional investment in the state economy.

The NSW government allocated $80 million in new funding for strategies under this blueprint in the recent state budget.

“Programs like the Innovation Blueprint provide the catalyst needed to reverse the decline by investing in local digital capability rather than offshore dependencies,” Atkinson said.

Last month, the Victorian government launched the Victorian Industry Policy, featuring a framework to “grow local industries, back cutting-edge technologies and build on” existing strengths.

It flagged a new direction for how the state government will work with industry, based on competitiveness, productivity and economic resilience.

It’s important that programs like this encourage Australian businesses to build and source tech locally, Atkinson said.

“When Australian businesses outsource their technology requirements overseas, they export jobs, intellectual property and future growth potential,” he said.

“The sector’s contraction shows where the strategy leads.

“Companies like Canva and Atlassian prove we can compete globally when we invest locally.

“If we want to avoid another 2.6 per cent decline next year, Australian businesses and governments need to start building their digital future here, not buying it from overseas.”

The role of AI

There are hopes the increased uptake of artificial intelligence across the economy could boost Australia’s GDP in general, and help grow the local tech sector.

OpenAI, the owner of ChatGPT, this week released an “economic blueprint” for Australia to unlock the “full economic and social potential of AI”.

“We believe Australia needs to act more boldly and decisively to maximise AI’s possibilities while also ensuring it’s used responsibly to mitigate potential negative effects,” OpenAI head of policy, APAC, Sandy Kunvatanagarn said.

“We are at an inflection point. The opportunity AI presents to spur productivity and increase prosperity is too compelling to forfeit.”

OpenAI’s recommendations include AI skills training for workers, students and managers; tax incentives for all businesses adopting AI; embedding AI literacy and responsible use in schools and universities; and to modernise government services delivery through responsible AI.