New tech will erode tax base, think tank warns

By on 10/08/2018 | Updated on 24/09/2020
Just as mechanical robots have reduced human labour in blue collar jobs, digital automation and artificial intelligence are set to sweep away many skilled professional roles (Image courtesy: Zen wave).

Changes to the world of work, including automation, artificial intelligence and the rise of the gig economy, could erode tax revenues so severely that it becomes difficult to provide essential state services by 2040, a Canadian think tank has warned.

The report, ‘Robots, Revenues and Responses: Ontario and the Future of Work’, was published last week by Canadian public policy think tank The Mowat Centre. In it, the researchers address two questions: how will the changing nature of work impact the tax base and governments’ ability to generate revenue? And how well-prepared are Canada and Ontario to address the challenges workers will experience in the labour market of the future?

The report points out that most taxation is currently built around citizens’ residency and organisations’ physical locations. But disruptive technologies such as blockchain, the sharing economy and the rise of global digital platforms are leading to “an increasingly borderless world”, placing significant strain on the present tax system. These issues are examined alongside Ontario’s local challenges over the next 10-20 years – many of which, such as an ageing population, are common to most developed economies.

Horizon scanning

The report maps out four possible scenarios that could unfold by 2040, depending on the speed of technological change and the degree to which government institutions respond. In the worse case scenario, with a slow government response, public bodies could struggle to fund education, healthcare and social support just as more people come to rely on state services.

The authors said: “Without taking action to confront the sources of this strain, Ontario could find itself facing plunging tax revenues at the very moment when an ageing population consigns it to a slow growth trajectory and technological change results in [rising unemployment and thus] unprecedented claims being made on its social safety net.”

On the other hand, the report finds, significant institutional change could bolster the state and improve resilience to the shocks that a rapidly changing world of work are likely to create.

Considering solutions

The report outlines several policy options that governments could implement to protect themselves and their citizens. These include collaborating with the federal government to raise the tax take from global digital companies; working with businesses such as Airbnb and Uber to collect more revenue; and investing in education and a “culture of life long learning” for citizens who will need to adapt to the new economic landscape.

The report also recommends that governments make use of technologies set to disrupt the working world. Digital service delivery could offer significant savings, and “new technologies can help detect tax evasion as well as enable it,” it says.

Whatever happens next, the authors argue: “How changing work patterns and disruptive technologies will impact government revenues should be a top of mind issue for policymakers going forward.”

About Natalie Leal

Natalie is a freelance journalist whose work has been published by The Sun Online, The Guardian, Novara Media, Positive News, and Welfare Weekly, among others. She also writes reports and case studies on global business trends for behavioural insights agency, Canvas8. Prior to working as a journalist Natalie worked for the public sector in social services for several years. She switched careers in 2013 after winning a fully funded NCTJ in a national writing competition. She holds a Masters degree in social anthropology from Sussex University where she specialised in processes of social change and international conflict and reconciliation processes.


  1. Doug says:

    It seems to me that the “solution” for governments to increase the use of “digital service delivery” is exactly what is causing the reduced revenue stream from industry -> less workers = less tax paid. So, if the government replaces workers with automated systems, they will be part of the problem they are trying to solve.

  2. Martin from Canada says:

    Interesting article, thanks.

    I’m almost finished reading Homo Deus, which discusses issues related to changing technology. While the focus in not on the implications for state revenues, the author does discuss the concept that as AI continues to evolve more and more people will become permanently unemployed. Elsewhere there have been calculations showing when various careers will disappear from human delivery, starting with many drivers in the 2020s, looking out to when surgeons can be replaced by the early 2050s, and most other careers disappearing in between. The idea is that for the first time on our plant intelligence has become decoupled from consciousness.

    Also related to this article, the author of Homo Deus suggests that wealth will continue to be concentrated in fewer and fewer hands and perhaps not in hands at all but in abstract entities such as corporations and/or wealth-holding AI; traditionally our purpose was defined by our role as workers, citizens and consumers, and our future roles will not provide identities in this way; most people will spend their lives in virtual worlds and/or in drug-induced states.

    My hope is that governments and others can absorb the early warnings contained in such studies referenced in the article and take action. But typically governments do not (can not?) take grand actions on grand visions. Look for example at the anemic response to climate change, the difficulty in the US obtaining public health care, the weak actions regarding the Syrian conflict and the resulting massive migration, etc.

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