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Artificial intelligence

AI-driven unemployment in Hong Kong can be offset by a tax on profits generated by robots

Scott Cheng and David Ketchum say the Hong Kong government must reckon with the impact of artificial intelligence on human employment. One way to do this would be to amend the tax regime, by taxing profits generated from using robots

PUBLISHED : Saturday, 31 March, 2018, 10:47am
UPDATED : Saturday, 31 March, 2018, 6:12pm

Robots and artificial intelligence are increasingly more efficient, reliable and functional. Businessmen also see great cost benefits to them because robots do not need wages and health insurance.

It is therefore an inevitable trend that automated intelligent machines or so-called robotic process systems will take over more human roles.

In the 2018-2019 budget, Hong Kong’s Financial Secretary Paul Chan Mo-po vowed to spend more money to boost innovation and development. In the long run, this progressive initiative is likely to displace hundreds of thousands of workers as AI and robots take over the jobs traditionally handled by humans. 

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In this scenario, while gross domestic product may rise and corporations will generate higher profits because of the lower labour costs, the government will collect less from salaries tax (given that more people will be jobless).

Any responsible government must address the gap between the interests of potentially displaced workers and those of shareholders and corporate management.

Governments should be thinking about how to deal with the potential upheaval as a result of massive unemployment

Today, one in three jobs is vulnerable to replacement by AI and robotics, according to research firm Gartner.

Anti-Luddites argue that more new jobs will be created faster than the jobs destroyed, and the new jobs will be higher-paid, and generate higher income tax revenues. At least in theory, some of the industrial and service jobs lost will free up workers to refocus on education, social service and other roles that require human skills and empathy.

However, with job losses predicted at 30 per cent of the UK workforce and 38 per cent in the US in a PricewaterhouseCoopers report, and even more in China and in developing countries, every responsible government should be thinking ahead about how to deal with the potential economic and social upheaval as a result of massive structural unemployment.

Job losses won’t be confined to bus drivers and factory workers; stockbrokers, accountants, lawyers and other rules-based professions, and even doctors and surgeons are at risk.

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Last year, Microsoft founder Bill Gates proposed collecting a tax on every robot installed, so that governments can fund jobs, such as taking care of the elderly or working with children in schools.

The benefits to society and the workers displaced are clear, and the tax could slow the displacement of people by robots, giving the economy and society a chance to adapt to the changing realities of the workplace.

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Taken to another level, taxes on businesses can also be used to fund a universal basic income, whereby all citizens receive a flat payment each month, regardless of their skills, job or lifestyle. With the economy doing well and the machines performing the work, society can afford to pay people to do nothing in this utopian view.

A universal basic income may have a place in Hong Kong’s future, but traditionally this city has been about opportunity and competition, with plenty of government services but a tenuous social safety net.

With the economy doing well and the machines performing the work, society can afford to pay people to do nothing in this utopian view

Raising taxes on corporations specifically for the use of AI and robots does not fit particularly well with Hong Kong’s free-market economy, even setting aside the challenge of defining and dentifying AI and robots for tax purposes. 

Tax incentives and barriers can significantly influence the behaviour of businesses and people and obscure the real dynamics of the economy and society. The recent drop in electric vehicle sales to nearly zero after the government stopped the tax incentive for purchase is a good indicator of how robot installation rates may go if financial disincentives are introduced.

In the medium term, robot taxes have the potential to reduce our economy’s ability to innovate. Why add friction to Hong Kong’s innovation economy by adding a financial disincentive to the very actions we wish to encourage?

Let’s try and see whether robots could be put to work with only a light overlay of government intervention. Instead of imposing a tax on the use of AI and robots, let’s consider taxing a portion of the profit increases generated by decreased labour costs and other efficiencies.

In the short term, this kind of tax may deter corporate investment in technology, but as long as innovators and enterprises see that the marginal increase in returns on research and investment are greater than the costs incurred and the tax imposed, they will continue to innovate and use AI and robots.

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Given Hong Kong’s huge fiscal reserves, why should we bother with such a tax at all?

One school of thought says “why not?”, because Hong Kong’s tax base is precariously narrow. Stamp duties, salaries and profits taxes and land sale revenue make up over 60 per cent of our annual revenue. If the dynamics of the economy is changing, then the tax regime may require a course correction as well. 

A tax proportionate to rising gross domestic product and company profits earned as a result of labour cost savings – from using robots instead of human workers – can fund government efforts to enable its residents to adapt to the new realities.

This is especially true for those with low education and skills who will bear the brunt of rising unemployment.

Scott Cheng is a public affairs and communications consultant and a former public policy researcher with the One Country Two Systems Research Institute and the Democratic Alliance for the Betterment and Progress of Hong Kong. David Ketchum is founder and CEO of Current Asia and chairman of Digital + Direct Marketing Association Asia