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Taxing the pace of change

Taxing the pace of change

Taxing the pace of change

Jane McCormick | Leadership,

There was a gin bar at the reception I was at last night. Gin is obviously the thing at the moment. The other day someone told me they had been to a bar where they had someone who could advise you which tonic water to mix with your chosen gin. We were trying to work out what the job description of this person would be (gin sommelier?) when a younger member of the group informed us that there is an app that does this. “Blimey” my friend said “technology is moving so fast that it has replaced a job even before we’ve decided what it is called”.

The pace of change of technology is staggering and it is changing society at an equally staggering pace. Some of this change is good for us all, some isn’t. How we guide this change, and how we cope with the transition is a big topic for discussion here. Here are my thoughts on how tax might play a part.

In most countries in the world we tax labour. If labour is replaced by automation you face a huge loss of revenues when the need for those revenues is likely to have increased. This has led to the idea of taxing robots. I struggle with this because I don’t think robots can own money in the first place. Like any tax, a tax on robots would eventually be a cost on the people who are stakeholders in the business. What the idea flags, however, is that we probably need to go back to the drawing board and completely rethink the way the tax system works, both at a national level and internationally. In a world that will be economically and socially different, how would we devise a tax system that continues to collect the revenues needed for health, education, etc., and does not distort economic decision making in a way which is adverse to the social good.

There are some people trying to do this. For example, the Ex’Tax Project, represented here at Davos, proposes a shift of taxation from labour to natural resources use. The foundation of this idea is environmental but it might have relevance to the human vs robot question as well because robots are made of and consume natural resources (energy).

Governments are thinking about the future when they develop policy. The immediate challenge is, however, dealing with the loss of revenues due to the gig/sharing economy. It is much easier to tax a multinational hotel chain than it is to tax individual apartment owners who may or may not be subject to tax and who may or may not pay the tax they are subject to. I am not aware of much government level discussion on the bigger issue of the overall impact of automation both on domestic revenues and on the way in which wealth will be spread across the world.

Some of the futurologists here are telling us not to worry about the fact that robots are going to take all of our jobs; the future is about man and robot working together so we will all have jobs, but they will just be different (creative, dextrous and empathetic). I hope this is the case, but it poses a real challenge during the transition period because not everyone will have the ability or resources to adapt to the change. Helping communities adapt to this change is something that the business community needs to do and indeed is doing. But inevitably, to my mind it will put additional strain on the tax system as jobs and wealth move between communities in a country and between countries.

There is more discussion about tax this year than last, and I am particularly looking forward to a discussion on the development of global value chains tomorrow, but given the importance of the issues faced and the proportion of the economy represented by taxation, there is not enough and too much of it is focussed on the problems of yesterday rather than those of tomorrow. Those of us here will, however, keep on banging the drum.

PS. One issue which is getting attention is US tax reform and in particular how those businesses who are getting a windfall from the change will distribute the money. Will it be distributed to shareholders (the market seems to be pricing in this expectation), will it fund investment (JP Morgan have announced a $20bn investment program) or will it be shared with employees (which many multinationals have also announced)? An interesting one to watch.