IMF Chief Warns AI Could Erode Global Tax Bases
International Monetary Fund Managing Director Kristalina Georgieva warned financial ministers that widespread artificial intelligence adoption could erode global tax bases as technology squeezes incomes. Speaking at the fund’s summit in Bangkok, the IMF chief described artificial intelligence as a slow-moving tsunami that could affect 60 percent of jobs in wealthy countries.
AI Labor Displacement Threatens Government Tax Revenue
Governments remain ill-prepared for a potential slump in tax revenue brought on by artificial intelligence displacing labor. Income taxes account for more than a quarter of total tax receipts in the UK, while National Insurance paid by workers and employers accounts for about 16 per cent of total receipts for 2025-26. Levies on the highest earners also generate significant revenue, with the top one per cent paying about 28.5 per cent of all tax.
Georgieva published a blog post outlining that countries will need fiscal space to invest in infrastructure and skills while cushioning the impact on vulnerable populations. With public debt already high, policymakers face difficult choices regarding fiscal policy and tax reform.
Economists Propose Structural Changes to Address Fiscal Shortfalls
Various economists and institutions have proposed structural changes to address impending fiscal shortfalls. Former Chancellor Rachel Reeves announced the launch of the UK’s AI Economics Institute, led by Nobel prize winner Professor Simon Johnson, to evaluate and manage the fiscal policy effects of the technology. Oxford professor Ben Ansell proposed an AI token tax as a levy on model usage. Meanwhile, Austrian-American economist Anton Korinek, a member of Anthropic’s economic advisory council, argued that governments should transition from income taxation to consumption taxation.
Beyond labor income, the IMF warned of potential stock price drops cascading through an artificial intelligence ecosystem built on high debt and circular investments, with losses spreading globally. Financial Stability Board chair Andrew Bailey and Bank of England deputy governor Sarah Breeden previously predicted a market correction if company profits disappoint following years of heavy capital investment in the sector.
Broader Economic Pressures in Europe
Risks to artificial intelligence firms and governments unfold amid ongoing conflicts in Ukraine and the Middle East alongside low economic growth in Western nations. The IMF urged European countries to avoid imposing additional protectionist measures. This advisory follows scrutiny over the Made in Europe scheme, which was designed to boost domestic manufacturers over imports from China. Economists advised European leaders against rising calls for interventionist industrial policy, concluding such measures fail to durably address underlying growth problems. Ministers managing large deficits across the continent were also urged to limit energy support packages strictly to the most vulnerable populations.