What is the impact of the AI upheaval on tax?

For all the benefits of artificial intelligence (AI), there are concerns that it will not only impact the job market but erode tax coffers. But maybe AI creates an opportunity to improve the tax system.

by | 16 Jan, 2025

A customer service employee speaks into a headset in an office

AI’s impact on the job market has flow on effects on tax revenue.


At a glance

  • AI could reduce tax revenue at state and federal levels. 
  • Solutions include an AI tax on companies and an education levy to fund the reskilling of affected workers. 
  • But it could present the opportunity for a long-needed overhaul of the Australian taxation system. 

Over the past 10 months, the number of organisations using AI regularly has doubled from one third to two thirds, according to McKinsey’s latest report. Currently, AI is used for marketing and sales and product and service development.  

By 2030, the technology is expected to be more prevalent in office administration, customer service and food services, with the report estimating 1.3 million job losses across Australia. Globally, AI is expected to impact 40 per cent of jobs. About 60 per cent of those affected will be in developed economies, according to the International Monetary Fund.   

Governments could face a significant reduction in tax revenue if AI erodes the job market. What might this mean for Australia’s current taxation system, and what should be done about it? Will this require large-scale reform

We speak with Dr Max Bruce, lecturer in Taxation Law in the College of Business and Economics at the Australian National University.  

How AI could impact tax in Australia 

“Were we to assume that many jobs will be replaced by AI, and therefore, [those who lose theirs] will have to do something else to derive an income, then there will be a couple of key consequences for taxation,” says Dr Bruce.  

At the state level, payroll tax will decrease. “The states rely heavily on payroll tax, in addition to stamp duty, as their main source of tax revenue (other than GST), so a lack of payroll tax would have an immediate effect.” 

Meanwhile, the federal government will grapple with a reduction in income tax. “We rely heavily on personal income tax – it is our main source of revenue,” says Dr Bruce. 

“[Many people] whose jobs are replaced by AI will become consultants because someone has to feed information into AI.  

“While, as employees, they can’t claim much in the way of deductions, as businesses, they can. This could come as a bit of a surprise.” 

Unions call for an AI tax 

Faced with these challenges, organisations and experts have been calling for taxation reform.  

One of these is the Media, Entertainment, and Arts Alliance (MEAA), which, in July, urged the government to introduce a tax on businesses that replace workers with AI.  ‘’The idea is not without precedent,” says Dr Bruce. “In the late 1700s and early 1800s, taxation was direct. For example, if wealthy people had carriages, windows, and fireplaces, we would tax carriages, windows, and fireplaces.” 

An AI tax would be similar to what taxation theory refers to as a wealth tax. “[The government] might say, if AI allows your business to make a profit, then we will tax each of your AI licences at a [specified] value.” 

Such a tax would be most effective if international – just like the global corporate tax rate, which is set at a minimum 15 per cent, says Marietje Schaake, international policy director at Stanford University’s Cyber Policy Centre. 

This means that debate should start now, so that agreement can be reached on the tax rate and how the money should be used, whether it is to cauterise job losses or respond to the broader impact of AI on society. 

“We need every state and territory on board. Without large-scale reform, we’ll be in a worse position.”   

Dr Max Bruce, lecturer, College of Business and Economics, Australian National University

The risks of an AI tax on businesses 

However, an AI tax could thwart innovation, argues James Broughel. It is unclear whether AI will result in unemployment. While some jobs might become obsolete, new jobs will be invented. Broughel believes governments should be cautious and respond to changes as they occur – rather than jumping the gun with an AI tax.  

“It’s still early days,” says Dr Bruce. “As much as we talk about AI taking people’s jobs, it’s more likely to change the way we work.  

“Laborious manual tasks, like the first draft of a contract in a law firm, can be done by AI, but the product will still need to be checked by qualified people.” 

Education levy one option to fund upskilling, but could fall short  

One approach that would allow governments to react slowly would be an education tax, according to Vikram Chand et al. This would operate similarly to the Medicare levy, in that a small percentage of income and/or company tax would go towards educating people to operate AI.  

Governments could increase or decrease the amount in line with demand. An education levy would encourage innovation, and accelerate re-employment, thereby slowing reductions in payroll and income tax. A similar levy exists in Brazil, where the government collects 2.5 per cent of each employer’s payroll to fund education for students on low incomes.  

An opportunity for taxation reform 

However, Dr Bruce says this piecemeal reform falls short. There was an opportunity for much needed, large-scale reform of the Australian taxation system. 

“The last time we had a major overhaul was in the late 1990s and early 2000s, and it didn’t envisage the world we currently operate in,” says Dr Bruce. “We’re in desperate need of big ideas.” 

Rather than relying so heavily on income tax, the government could consider an increase in broad-based, low-rate taxation, Dr Bruce argues. 

“If you use your credit card to buy a sausage sizzle for $2.50, you pay, say, 10 cents to your bank. Banks make [billions] every year in minor transactional fees. 

“Most taxation experts and economists agree that these are the kinds of tactics we should be thinking of – they’re a lot more effective than trying to tax people on their income.” 

However, broad-based taxes are not necessarily easy to institute, particularly at state level. 

“There can be constitutional difficulties,” says Dr Bruce. “For example, Victoria tried to introduce a tax on electric vehicles, but the High Court struck it down because it was considered an excise tax, and therefore only within the federal government’s powers.” 

Consequently, change would have to take place at the federal level. 

“We need every state and territory on board – without large-scale reform, we’ll be in a worse position,” Dr Bruce says. “Things are going to be rough for the next 10 years, but it might be the medicine we need to set up for the next 50.” 

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