Welcome back toNeural Notes, a weekly column where I look at how AI is affecting Australia.In this edition: Labor hands the Department of Industry responsibility for sovereign capability while also spinning up a Digital Economy role and talking a whole lot more about AI.Sovereign capability and AI governance: A post-election pivotOn Tuesday, the Albanese government made sovereign capability a formal policy priority for its second term. And it has tasked the Department of Industry, Science and Resources (DISR) with the responsibility.This means that the Labor government is placing more stock in Australia being able to independently develop, produce, and maintain critical technologies and infrastructure without relying excessively on foreign-owned entities or overseas supply chains.Related Article Block PlaceholderArticle ID: 316075Neural Notes: Can Labor’s second term deliver on AI ambition?Tegan JonesIt is particularly important in sectors like AI, cybersecurity, and advanced manufacturing, where disruptions or foreign control could pose risks to national security and economic stability.The decision builds on the department’s existing role as the coordinator of supply chain resilience policy, a responsibility it assumed under former minister Ed Husic in 2022.And this move comes alongside the appointment ofTim Ayres as Minister for Industry, Science and Resources, and Andrew Charlton as Assistant Minister for Science, Technology, and the Digital Economy.Ayres brings a strong background in manufacturing and industry policy, particularly through his leadership in the Future Made in Australia plan, which focused on boosting local production and reducing reliance on international supply chains.Charlton’s expertise lies in digital economy strategy and business analytics, making him well-placed to address the challenges of integrating technology policy with economic growth.Their combined experience certainly seems to be a strategic play from Labor to advance Australian AI innovation and responsible tech regulation.Assigning sovereign capability to DISR aligns with the government’s Future Made in Australia plan, signaling a possible uptick in the importance of local innovation and production in maintaining economic security.Labor breaks its tech silenceTech and AI have been getting quite the look in from Labor’s talking points over the past week and a half.For the tech sector, this came somewhat as a surprise after Labor’s election campaign was largely silent on tech and AI. This followed the same trend as the 2025-26 federal budget, which barely mentioned tech anddidn’t have a single line item regarding AI.This changed the morning after the election whenTreasurer Jim Chalmers laid the groundwork onInsiders, briefly mentioning Labor needed to focus more on tech and AI.The shift follows calls from the tech community for more investment in tech and innovation in order to secure Australia’s economic future.Related Article Block PlaceholderArticle ID: 316219Husic warns against ‘timidity’ in tech policy amid cabinet shakeupTegan JonesIt also follows comments from former DISR chief Ed Husic, whowarned his own partyagainst “timidity” when it comes to tech.But perhaps the timing isn’t all that surprising.The push for sovereign capability comes at a time of global economic unrest, including recent US tariffs on Australian businesses.As global supply chains face increasing strain, particularly in the tech sector, ensuring Australia can maintain independent control over critical technologies has become more pressing.The Tech Council of Australia (TCA) had been vocal in calling for a structured approach to the digital economy, warning thatAustralia risks losing $167 billion in economic opportunityby 2035 without urgent investment in AI, R&D, and digital transformation.This long-overdue shift also comes when there has been more private investment in AI than ever.According to the latest Cut Through Ventures report, AI-first startups topped Australia’s deal count in Q1 of 2025 for the first time.That being said, asSmartCompanyreported last month, many startups are now describing themselves as AI-powered regardless of whether AI is core to the product. And this is because of the popularity of the technology, particularly with potential investors.Safe and responsible AI: A strategic political shiftOne of the most critical updates from the new administrative arrangements is the inclusion of “safe and responsible use” within the technology policy directive, after hearing the term being thrown around as a talking point over the past couple of years.This move responds to growing concerns about the ethical and societal impacts of AI, reflecting a more cautious and regulated approach.The creation of the Digital Economy portfolio, led by Andrew Charlton, addresses theTCA’s call for a dedicated focus on digital transformation.This structure signals the government’s intention to not only focus more on tech, but also balance the risks and opportunities of AI, positioning safety as a foundational aspect of its tech policy.Related Article Block PlaceholderArticle ID: 313218Neural Notes: Why weak AI oversight in government could spell trouble for SMEsTegan JonesHowever, the path to meaningful AI governance in Australia has been long and fraught with challenges.Back in 2024, the government announced its AI Regulation Roadmap, aiming to establish guardrails for the responsible development of high-risk AI applications, particularly in areas like healthcare, law enforcement, and recruitment.The plan proposed voluntary safety standards, with an eye toward potential mandatory requirements for applications deemed high-risk. The National AI Capability Plan,also introduced in 2024, was intended to position AI as a key economic pillar, promising to boost GDP by as much as $600 billion annually by 2030.Despite these ambitions, the rollout has been slow.The roadmap was followed by draft legislation, but much of the proposed framework remains under consultation. Meanwhile, the National AI Capability Plan has only been earmarked for sometime later this year.The 2025 federal budget was also arguably a missed opportunity to reaffirm the government’s commitment, as it contained no dedicated AI funding despite the rapid growth of generative AI and its adoption across multiple sectors.That’s not to say investment doesn’t exist. The government has been doing this, but it’s been more fragmented and slower to scale.In 2024, the federal government establishedAI Adopt Centres to help SMEs integrate AI safelyand launched a free AI course for one million Australians through a partnership with CSIRO, TAFE, and the National AI Centre.These initiatives reflect the government’s intent to build public trust in AI, but they contrast sharply with the rapid, often speculative funding seen in the private sector.As such, the gap between policy ambition and implementation has left the tech sector uncertain about the future of AI governance.Australia versus the worldAdding to the complexity is the global regulatory landscape. Countries like the EU have moved forward with robust frameworks, such as theAI Act, which imposes strict requirements on high-risk systems. Meanwhile, the US is taking a more industry-driven approach.Australia’s caution may be prudent, but it risks falling behind as other nations streamline their AI adoption. The recent administrative update, emphasising “safe and responsible use,” appears to be a step towards re-establishing AI governance as a priority, but still lacks concrete timelines.The appointment of Andrew Charlton to the Digital Economy portfolio directly addresses some of these gaps. By aligning digital transformation efforts with economic policy, the government is signaling a more structured approach to integrating AI safely while fostering innovation.Related Article Block PlaceholderArticle ID: 315596Tech Council calls for Digital Economy Minister as Elon Musk and others fill Australia’s connectivity gapsTegan JonesCharlton’s background in business analytics is expected to help bridge the gap between policy intent and practical implementation. However, there is still a tension between regulating AI for safety and fostering an environment that encourages innovation.While the government has maintained that regulation is essential to building public trust in AI, industry voices have warned being overly cautious could stifle progress and risk Australia falling behind global competitors racing to integrate AI across industries.Others, such as Aurélie Jacquet, director of Ethical AI Consulting, refute this perspective.“Framing safety as a barrier to the AI economic opportunity misses the mark. In fact, well-designed safety regulation can accelerate the adoption and scaling of AI by fostering trust and responsible use,” Jacquet said toSmartCompany.“The real challenge is defining what effective, adaptable, and forward-looking AI regulation looks like.”The tech industry will undoubtedly be watching closely to see whether the government’s pivot from campaign silence to strategic action delivers practical outcomes for AI startups and tech innovators.The challenge for Ayres and Charlton will be to ensure regulation and investment strategies keep pace with the rapid evolution of the AI landscape, balancing safety and innovation in a way that actually gives Australia a competitive edge and tech businesses a reason to build here.Never miss a story: sign up toSmartCompany’sfree daily newsletterand find our best stories onLinkedIn.