Countries need to take 'agile approach' in age of AI, IMF says

A new report from the International Monetary Fund says countries' fiscal policies have a leading role to play in ensuring an equal distribution of the gains made from generative artificial intelligence.

The report, released on Monday, comes as concerns grow over the potential of the rapidly developing technology to disrupt labour markets.

“AI holds the promise to significantly boost productivity growth and dramatically improve the delivery of public services, including in health and education,” said Era Dabla-Norris, one of the report's authors.

“But this promise also comes with considerable uncertainty, and the sheer scale and speed of the transformation runs the risk of disrupting labour markets and increasing inequality.”

To navigate the era of AI, the report recommends governments take an agile approach to prepare for disruptive scenarios.

“Decisions made now by policymakers will shape the evolution of AI for decades to come and its impacts for decades to come,” Ms Dabla-Norris told reporters.

“So with the right fiscal policies, we can harness the vast potential of AI and ensure that it delivers broader gains to humanity.”

The latest IMF modelling found stronger unemployment insurance coupled with re-skilling programmes can help cushion some of the short-term unemployment blows from AI.

The authors also said social safety nets need to be adapted in a situation where prolonged job losses from AI are possible.

A previous report found 40 per cent of global employment is exposed to AI, with the figure increasing to 60 per cent in advanced economies. That number shrinks to 40 per cent and 26 per cent for emerging markets and low-income countries, respectively.

Ms Dabla-Norris said that while these economies are less exposed to AI, they are also less prepared to adjust to the new technology.

“Many of these countries tend to have a larger share of the population that is not in employment or in education or training, which raises a concern about their ability to adjust to technological transitions,” she said.

The report also waded into the debate on how to tax AI, advising against a specific tax on investment AI.

It steered clear of suggesting a so-called robot tax – which aims to de-incentivise replacing workers and machines – and a specific tax on investment in AI over concerns that this could hamper productivity.

“In fact, countries already have scope to strengthen existing tax systems instead of adding on new taxes that if ill-designed could may do more harm than good,” Ms Dabla-Norris said.

Instead, the authors focused placing greater focus on taxing capital income, arguing gains from AI could further widen the global wealth gap.

The authors suggested the global minimum wealth tax, a supplemental tax on excess profits and stronger taxes on capital gains could help mitigate income inequality.

The authors also said automatic exchange of information would allow governments to more effectively tax capital incomes.

“We think that these are options that countries can explore,” said Ruud de Mooij, one of the report's co-authors.

The authors said decisions made by governments today have the opportunity to shape the impact of AI for decades, with the positive effects of the new technology now being felt.

“With the right fiscal policies, we can harness the vast potential of AI and ensure that it delivers broader gains to humanity,” Ms Dabla-Norris said.