IMF calls on govts to strengthen safety net in wake of AI boom

Business a.m.

The International Monetary Fund (IMF) has released a new report warning that governments must use fiscal policy as a tool to mitigate the potentially unequal distribution of economic benefits brought on by the rise of generative artificial intelligence (AI).

The report, which was released on Monday, discussed the potential for the new technology to disrupt labour markets and cause widespread economic disruption.

Era Dabla-Norris, one of the report’s authors, noted that generative AI holds the potential to significantly improve productivity and the delivery of essential public services like healthcare and education, a prospect that is both promising and uncertain.

Dabla-Norris also highlighted the magnitude and rapidity of the technological shift that AI represents, warning that this evolution could potentially disrupt labor markets and exacerbate inequality if not properly managed by governments through fiscal policy.

According to the IMF’s report, governments must adopt an adaptive, flexible approach to prepare for potential disruptive scenarios that may arise from the proliferation of AI. The authors recommend a multifaceted strategy that involves strengthening unemployment insurance and investing in reskilling programs to help ease the short-term impact of job displacement caused by AI advancements.

The authors of the IMF report underscored the need for governments to adapt their social safety net systems to account for potential prolonged job losses that may be caused by advances in AI.

The IMF report revealed that, based on previous research, approximately 40 percent of global employment is vulnerable to disruption by AI, with the figure reaching a staggering 60 percent in advanced economies. However, the report noted that while emerging markets and low-income countries are less exposed to AI-induced disruption at present, with 40 percent and 26 percent of their respective labor forces at risk, they are also less well-equipped to adjust and adapt to the new technology.

The IMF report also discussed the debate on how best to tax AI without stifling its growth and development.

In contrast to the idea of a “robot tax” or a specific tax on AI investments, which could potentially discourage firms from investing in the technology, the report advised against these types of measures, fearing that they could hamper productivity

The report identified several potential tax policy options that could help mitigate income inequality while still allowing AI to drive productivity growth. According to the authors, the global minimum wealth tax, a supplemental tax on excess profits, and stronger taxes on capital gains could all contribute to more equitable distribution of AI-driven economic gains.

Moreover, the report advocated for increased transparency and data sharing between tax authorities through automatic exchange of information, which would enable governments to more accurately tax capital incomes.

The authors of the report stressed that the decisions made by governments today will shape the trajectory of AI’s impact for many years to come.