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Victoria was ‘ruthless’ in its quest to become the datacentre capital of Australia. Why has it hit the brakes?

In the private dining room of Government House, Jacinta Allan was assiduously taking notes as waiters served a three-course meal made with local ingredients and accompanied by Victorian wines. Sitting around the table at the meeting in March were leaders of artificial intelligence companies and datacentres, hand picked by the governor’s office for a discussion about the future of the industry. The peak body for datacentres spoke about the investment opportunities presented by its members. Academic researchers an…

By the Truvace desk2 min read1 sourceJournalismTRV-2026-1556· cite & verify
Victoria was ‘ruthless’ in its quest to become the datacentre capital of Australia. Why has it hit the brakes?

In brief

Victoria's Labor government had courted AI and datacentre executives through dinners and meetings, with the then-premier promising to be 'ruthless' about making the state the datacentre capital of Australia. By mid-2026, constituent anger, poor polling and a change of premier had shifted ministers' tone, and cabinet approved a delayed plan for stricter datacentre rules that was announced on a Tuesday in late September.

The episode shows how local opposition to AI infrastructure can reverse a state's investment strategy before an election. What is not yet clear is whether the tougher rules will actually divert datacentre money to other states, as the industry body warns and the government denies, or how the contested Footscray expansion will be decided.

Main points

  1. The government's new rules set a 150m buffer between datacentres and homes and require fair community consultation.
  2. The new rules also require datacentres to use renewable energy, which the industry body says could redirect investment to other states.
  3. The M3 datacentre in Footscray is in an industrial area, but some homes lie within 15 metres of its boundary, and NextDC sought fast-tracked approval to build over 10 hectares.
  4. Labor MPs, including Katie Hall, pressed for a slower embrace of datacentres, with the Greens targeting her marginal seat.
  5. Queensland's premier secured a $31.9bn deal with Anthropic for what could be Australia's largest datacentre and said more deals were coming.

The problem

Fast-paced datacentre expansion close to homes, such as the M3 site in Footscray, generated community opposition that the government itself acknowledged as legitimate, forcing a policy reversal and raising investment-flight concerns.

The rundown

Ministerial diaries showed more than a dozen meetings with AI and datacentre executives in the first three months of the year, and the then-premier flagged up to $25bn in capital expenditure. A March dinner at Government House raised hopes of a formal working group, but one attendee said nothing followed.

The shift became visible when a minister wrote that she would not support NextDC's application for the M3 AI factory and accused its chief executive of using artificial intelligence to lobby her. Residents' letters, previously answered by public servants, began receiving ministerial replies from around July.

The government says its rules are the strongest in the country and that datacentres must power themselves, protect homes and pay their way. Data Centres Australia disagrees, while the AI minister called its warnings 'catastrophising' and said there is no evidence of investment leaving.

Sources

  1. JournalismThe Guardian2026-09-26

The debate