As technology changes our lives, shouldn’t it change our taxes?
Smartphones, artificial intelligence, virtual reality, autonomous cars, the internet of things and 3D printing — it is no longer business as usual
Technology and the internet are changing our lives. Online shopping is displacing the high street. The gig economy is disrupting employment patterns and wages. Gaming and streaming are altering leisure habits.
However, economies are being affected by the transformations to our lifestyles resulting from smartphones, artificial intelligence (AI), virtual reality, autonomous cars, to the internet of things and 3D printing.
Online shopping and price-comparison websites give consumers better information and more choice of places from which to buy, making it harder for companies to raise prices. Central banks are thus questioning whether inflation targeting remains valid for setting interest rates, or if alternative targets or broader data sources should be investigated.
But firms struggling to raise prices look to cut costs, including payrolls. Despite tight labour markets, global wage growth remains subdued with automation, or its threat, dampening bargaining power in low- and mid-skilled jobs.
Many jobs are open to technological threat, but some low-skilled, low-wage labour may not be worth replacing: instead, higher skill work could be vulnerable because the savings are greater. So while robots may steal some jobs, they will also create many new ones.
Furthermore, technology can improve productivity, allowing workers doing menial tasks to focus on higher value — possibly better-paid — work. It can free doctors to focus on treatment decisions, release teachers from administrative tasks, or save lawyers from scouring documents for key details.
If labour-market disruption impacts wages and employment, should governments revisit taxation policies? Should they tax robots? And should countries focus on the STEM subjects — science, technology, engineering and mathematics — plus continued learning to give workers the skills to make the most of ever-evolving technologies?
Governments must also think about how measurement of economic growth is affected by new means of consumption. Internet data sources have replaced paid-for encyclopaedias, for instance, while smartphones not only give access to free games, they mean we need no longer need buy alarm clocks, cameras, calculators, or even games-consoles or PCs.
And if technology allows flexible working or shorter working weeks, productivity gains may increase leisure time rather than lift GDP. Measures of happiness and wellbeing may be more important than economic growth. Smartphones allow the world to move away from cash and, in response, some central banks are considering creating digital currencies, possibly using blockchain.
We are, nevertheless, just at the start of a multi-decade wave of disruption, with tech-savvy, young populations setting the pace. The “digital native” generation born after 1990 is better at using computers and consumes things differently
The share of developed-market consumers from this generation looks set to double by 2030, but in emerging economies it could quadruple to almost 40%. Some 600-million to 700-million people in emerging countries gain access to the internet every year.
The implications are huge. On current trends, the share of US retail sales that are online could rise from 10% today to well over 30% by 2030. In the developed world, workplaces are seeing 1.5-million less IT-literate people leave each year to be replaced by better skilled staff who have grown up using computers.
• Pomeroy is HSBC Global Research economist.