Kristalina Georgieva, the Managing Director of the International Monetary Fund, warned finance ministers at the institution's meeting in Bangkok that the widespread adoption of artificial intelligence (AI) could lead to the weakening of tax bases globally. She emphasized that revenues will be under pressure from new technologies and many governments may not be prepared for a potential downturn in tax revenues.
Risks of Artificial Intelligence for the Labor Market
Georgieva described AI as a "slow-moving tsunami" that could affect 60 percent of jobs in wealthy countries. In a blog post, she advised governments to make "tough choices" and implement broad tax reforms to shift revenue streams from labor to other areas such as land or investment. She added: "AI may boost growth, but it can also reduce workers' income, increase inequality, and weaken the tax base."
Responding to Economic Challenges
Georgieva also stressed the need to create financial space for investment in infrastructure and skills, stating that assistance must be provided to the most vulnerable individuals. She warned that given high debts, policymakers must make tough choices. In the UK, income tax accounts for more than a quarter of total tax revenues, and the national tax paid by workers and employers will account for about 16 percent of total receipts in 2025-2026.
Georgieva also pointed to the potential decline in stock prices, which could broadly harm the complex and highly leveraged ecosystem in the field of artificial intelligence. These remarks align with predictions from Andrew Bailey, the head of the Financial Policy Committee, and Sarah Breeden, Deputy Governor of the Bank of England, who forecast that if corporate profits are disappointing after years of heavy investment in AI, markets will undergo a "correction."
The International Monetary Fund has also urged European countries to refrain from implementing more protectionist measures and advised governments to provide energy support packages only precisely and targeted to assist the most vulnerable individuals. Given the large deficits in various economies across Europe, economists have advised European leaders to ignore "growing calls for interventionist industrial policy," as these policies cannot address the fundamental growth issues in Europe.
