The head of the International Monetary Fund has warned financial ministers that widespread AI adoption could erode tax bases across the world as incomes are squeezed by the technology.

Kristalina Georgieva, the managing director of the IMF, said governments may be ill-prepared for a potential slump in tax revenue brought on by AI’s impact on the labour market. 

At the fund’s summit in Bangkok, Georgieva has issued a series of warnings on the impact of AI, calling the technology a “slow-moving tsunami” that could affect 60 per cent of jobs in wealthy countries. 

In a blog post on Thursday, Georgieva suggested governments would need to “make hard choices” and implement vast tax reform to shift revenue streams from labour to other 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. “Countries will need fiscal space to invest in infrastructure and skills, and cushion the impact on the most vulnerable. And they will need tax systems designed for the AI era. 

“With debt already high, policymakers will need to make hard choices.”

AI’s toll on the tax system

In the UK, income taxes account for more than a quarter of total tax receipts. National Insurance paid by workers and employers is another large revenue-raiser, accounting for about 16 per cent of total receipts in 2025-26. 

Revenue is also largely made from levies on the highest earners as the top one per cent pay about 28.5 per cent of all tax. 

Former Chancellor Rachel Reeves announced the launch of the UK’s AI Economics Institute, which is being led by Nobel prize winner Professor Simon Johnson, in order to evaluate and manage the effects that the technology could have on fiscal policy. 

Oxford professor Ben Ansell weighed in on the debate by proposing an “AI token tax”, which would be a levy on the use of models. The Austrian-American economist Anton Korinek, who sits on Anthropic’s economic advisory council, has said that governments should transition from income taxation to consumption taxation. 

In her warning on AI, Georgieva also said that there could be a fall in stock prices that “cascades through the highly leveraged and circular AI ecosystem”, with losses “spread around the world”. 

Her statements echo those of Financial Stability Board chair Andrew Bailey and Bank of England deputy governor Sarah Breeden, who predicted there would be a “correction” in market pricing if company profits disappoint following years of heavy capital investment in AI.

Risks to AI firms and governments come at a tumultuous time for the global economy given ongoing conflicts in Ukraine and the Middle East and low growth in Western economies. 

The IMF urged European countries to avoid imposing more protectionist measures, after its ‘Made in Europe’ scheme – designed to boost domestic manufacturers over imports from China – has come under the spotlight. 

Economists advised European leaders to dismiss “rising calls for more interventionist industrial policy” as they would not “durably address Europe’s underlying growth problem”. 

Given large deficits in various major economies across the continent, ministers were also urged to only provide energy support packages that were “tightly targeted at supporting the most vulnerable”.