IMF on generative AI & fiscal policies

The International Monetary Fund (IMF) has released a new paper emphasizing the crucial role fiscal policies must play in ensuring a more equal distribution of gains and opportunities arising from generative artificial intelligence (AI). According to the IMF, significant upgrades to social-protection and tax systems worldwide are imperative to address the challenges posed by AI-driven transformations. In an exclusive interview with CNBC Africa, Ruud de Mooij, Deputy Director of the Fiscal Affairs Department at the IMF, elaborated on the implications of generative AI and the necessary policy reforms to navigate this technological shift. Mooij highlighted the potential of generative AI to enhance productivity amidst a period of subdued global growth projections. However, he underscored the looming threat of substantial job displacements resulting from the adoption of AI technologies. A study conducted by the IMF revealed that approximately 60% of jobs could be exposed to generative AI, with about half of them at risk of being replaced by automation. In response to these findings, the IMF advocates for a strategic reevaluation of social protection systems and tax policies to mitigate the adverse effects of AI on the labor market. The impact of generative AI varies between advanced economies and low-income countries, with the former facing higher job exposure rates. Advanced economies possess more robust social protection mechanisms to cushion the effects of technological disruptions compared to developing nations, which often lack similar safety nets. Mooij emphasized the importance of tailored policy interventions that align with the specific challenges faced by each type of economy. While advanced economies may focus on leveraging existing social safety nets, low-income countries are encouraged to invest in digital infrastructure and skills development to maximize the benefits of AI adoption. When discussing the taxation of AI-related investments, Mooij called attention to the disparity in tax treatment across countries. Some nations incentivize AI investments through lower tax rates, while others impose heavier taxes on such expenditures. As the potential for job displacement grows, Mooij suggested a reevaluation of taxation policies to ensure a fair distribution of the gains generated by AI. He emphasized the need to strengthen the taxation of capital income, including corporate income taxes and capital gains taxes, to address rising income inequality. Mooij also emphasized the importance of a tax system that does not overly differentiate between capital and labor income, as this could lead to income misclassification and tax avoidance. To achieve a more equitable distribution of wealth, Mooij highlighted the necessity of effectively taxing concentrated capital incomes. The interview with Mooij shed light on the complex interplay between fiscal policies, generative AI, and income distribution, urging policymakers to proactively address these challenges in the evolving digital landscape.