The head of the International Monetary Fund has cautioned financial ministers that widespread AI adoption risks eroding tax bases across the world as worker incomes shrink.
Kristalina Georgieva, the managing director of the IMF, warned governments may be ill-prepared for a potential slump in tax revenue brought on by AI’s impact on the labour market.
Speaking at the fund’s summit in Bangkok, Georgieva described AI as a “slow-moving tsunami” that could affect 60 per cent of jobs in wealthy countries.
In a blog post, Georgieva argued governments would need to “make hard choices” and implement sweeping tax reform, shifting revenue streams from labour to areas such as land or investment.
“AI may raise growth, but it could also reduce labour income, increase inequality, and erode the tax base,” Georgieva said, laying out the scale of the fiscal challenge ahead.
She added that countries would need tax systems redesigned specifically for the AI era, with fiscal space to invest in infrastructure and protect the most vulnerable citizens.
“With debt already high, policymakers will need to make hard choices,” she warned, underlining the urgency of the situation for governments carrying large deficits.
In the UK, income taxes account for more than a quarter of total tax receipts, with National Insurance accounting for about 16 per cent of total receipts in 2025-26.
The concentration of tax revenue among top earners adds further fragility, with the top one per cent currently paying about 28.5 per cent of all tax collected.
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 technology’s effects on fiscal policy.
Oxford professor Ben Ansell has proposed an “AI token tax” as a levy on the use of models, while economist Anton Korinek, who sits on Anthropic’s economic advisory council, has advocated transitioning from income taxation to consumption taxation.
Georgieva also warned that a fall in stock prices could “cascade through the highly leveraged and circular AI ecosystem,” with losses “spread around the world.”
Her remarks echo those of Financial Stability Board chair Andrew Bailey and Bank of England deputy governor Sarah Breeden, who predicted a “correction” in market pricing if company profits disappoint after years of heavy AI capital investment.
These risks arrive during a turbulent period for the global economy, with ongoing conflicts in Ukraine and the Middle East compounding already low growth across Western economies.
The IMF also urged European countries to resist protectionist measures and dismiss “rising calls for more interventionist industrial policy,” arguing such approaches would not “durably address Europe’s underlying growth problem.”