Automation is changing every industry – energy included. From robotics and Artificial Intelligence to automated warehouses and autonomous cars.
It would be a reckless government that didn’t think about how to address the challenges. We already know that to compete in the emerging global economy, we need to change the nature and focus of education and prepare adults for roles which will mainly be higher skilled as the “bots” will most likely do the rest. So, it’s reasonable at least to explore the scenario of rising technological unemployment over the next decade.
Realistically, this means we’ll need to fund either a higher total unemployment benefit bill or the provision of some form of guaranteed basic income and / or guaranteed basic services. Fewer people working means less overall income tax, which means a revenue shortfall.
The Labour party has been mooting the idea of “robot taxes” to finance the cost of adult retraining, education transformation and unemployment provisions. The argument is that robots should be taxed because they will be considered as something that creates value for the owner, like property, and if firms are cutting headcounts, then they are likely to be making higher profits. Furthermore, the belief is that those who will receive the benefits will spend that money with the firms who paid the robot taxes.
Alongside covering unemployment costs, a robot tax could be channelled directly into public education – paying for public schools and universities. This might prevent a backlash from the people whose jobs are lost to automation, and create enough money to revamp an outdated education system into one that teaches the knowledge and skills which will be in demand in 2030 and beyond. The underlying principle is that we should use the value of automation to benefit society and prevent future problems.
Are robot taxes likely?
Some governments have started to think about the human consequences of automation – exploring everything from new approaches to adult education to encouraging the creation of start-ups. Canada, Finland and Germany have also been experimenting with different forms of guaranteed or universal basic income (UBI). These are relatively small experiments with intention of learning about them before they are required.
At a broader tax policy level, across the world, rapid automation must be seen as one very important driver of change to nations’ tax collection regimes. It is critical to explore different possible scenarios to understand the likely spending requirements and revenues under a range of different conditions. Governments can then examine both their spending priorities and possible revenue instruments.
Who will jump first?
By 2030 the possible pace of change means robot taxes could well be commonplace in many industrial nations. Countries that are embracing automation and the digital era in all its forms such as South Korea, Japan and Singapore might be among the first to implement some form of automation taxation mechanism.
Estonia, Finland, Sweden, Denmark, Iceland, and Germany are likely to be among the first in Europe to revamp their tax systems in this way. But the US is likely to face strong resistance to such changes. Indeed, it could well be among the last to go down this route.
How will it work?
The aim should be to evolve a more flexible approach to creating income to fund future public services. The algorithms could take account factors such as expenditure on training and retraining current and former employees, the support given by firms to start-ups, the level of employment created further down the value chain, and the amount of tax paid by the firm’s employees. Evaluation of a business’s broader impact on society could also factor into the level of taxation, for example, the actual level of human employment, local and national social responsibility, environmental impact.
There are also precedents we can learn from. For example, the British pharmaceutical industry pays a levy based on revenue or capital employed on its supplies to the NHS. This is a mechanism to control profits on medicine supplies to the NHS, while rewarding investment in R&D. A similar approach could be taken with the level of automation a company employs, versus their “investment” in people.
Are there risks?
It is going to be unpopular with a lot of politicians, businesses, commentators, accountancy firms, certain news media and economists. It is already being cast as unbridled socialism by many proponents of low taxes and free markets.
It could be costly and complex to implement and opponents will look for any shortcomings to cast it off as a failure. The prevailing corporate mind-set is often to base multinational operations in lower tax markets, so competition for the hosting of multinational organisations could intensify without global agreements. Inevitably, many will look for ways to minimise their tax payments and a range of advisory services and schemes will spring up to help firms do so. Failure to implement a viable system or a workable alternative could have disastrous consequences for governments, leading to potential reductions in public service provision and even the failure of some economies.
What are the potential benefits?
Whilst robot taxes may not be the ultimate answer, it is the only clear policy idea that is even being mooted today. Ultimately, the notion of taxation based on automation could prove to be a catalyst for more socially responsible “carrot and stick” approaches to corporate tax.
Maybe the application of increasingly sophisticated AI could be the critical enabling technology providing a fair and transparent system with no potential for avoidance or manipulation. Perhaps the fully automated corporation or Decentralised Autonomous Organisation (DAO) of the future may see its prime directive as serving humanity as a whole.
How do we get started?
The first stage must be to run some serious computer simulations of different scenarios for the pace of automation and the impacts on employment. These could be used to help the development of economic models to explore the funding requirements of different public service strategies and how they might be met.
AI is creating the tools that are driving the pace of automation and the likely increase in unemployment. But, AI could also be used to design and develop new approaches to taxation that could help us address the societal consequences of technological disruption and ensure a very human future for all.
Rohit Talwar, Steve Wells and Alexandra Whittington work for Fast Future, which publishes books from future thinkers around the world exploring how developments such as AI, robotics and disruptive thinking could impact individuals, society and business and create new trillion-dollar sectors.
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