National debt: UBS’s Paul Donovan warns governements will leverage private wealth

Governments, with their enormous debt burdens and exorbitant borrowing costs, aspire to that wealth, and they want it.

Policymakers have tapped into private wealth in the past to make ends meet, Paul Donovan, chief economist at UBS, recently told media at a roundtable discussion of the 2026 economic outlook — but the question is whether they will use the carrot or the stick to raise revenue from individuals.

As such, some may be more popular than others. “Governments have long mobilized private wealth to shore up public finances,” Donovan said last week. “There are many approaches. One is to influence market behavior – encouraging people to buy government bonds through incentives such as tax-exempt premium bonds, which channel savings directly into state finances. Prudential regulations can also funnel pension funds towards local government debt, as happened in the UK after 1945, when the debt-to-GDP ratio was successfully reduced by 240% over “Decades of time.”

It is the debt-to-GDP ratio that worries economists, not the size of the debt itself. After all, the ratio is a useful indicator of whether an economy is growing fast enough to generate the revenue needed to repay its debts – or interest payments on its debts – to lenders. If clients buying government debt feel the ratio is unbalanced, they may demand higher interest to compensate for the risk and thus push the government’s budget even further.

Increasing the supply of debt buyers – with individuals motivated by a tax break, for example – allows governments to borrow more without facing higher interest rates in the market.

However, there are other, less popular ways to increase revenue to pay off debt. “There are more controversial options, such as taxing wealth through capital gains or inheritance taxes,” Donovan added. “In practice, the initial focus tends to be on financial repression – using tax incentives or regulation to funnel money into government bonds – before moving towards wealth taxation.”

Transfer wealth in a timely manner

Inheritance fees will be hugely important in an era of massive wealth transfers, with $80 trillion set to change hands over the next 20 years, according to UBS. Some studies have put this number even higher, saying that as much as $124 trillion will be passed from older generations to their younger counterparts.

Donovan has previously warned that politicians are likely to wonder how the shift could help revive their fortunes. “It seems unrealistic to assume that governments will sit idly by while this wealth moves in,” the chief economist said in a video last month. “We expect governments to try to mobilize that wealth to help finance their debt, but in doing so, they deprive private sector investments of access to some of this money.”

With global public debt now exceeding $100 trillion, politicians and the general public are increasingly concerned about this issue. While economists have called President Trump’s methods “bizarre,” there is no doubt that his tariff regime has brought billions to Uncle Sam’s bottom line.

The White House has also proposed selling “golden cards” to potentially wealthy immigrants, with Trump saying it would be “good” to offset some debts with the proceeds. However, this idea was floated in February with the promise that more details would emerge within a couple of weeks – such finer details have yet to be confirmed.

UK Chancellor Rachel Reeves has adopted a different approach – perhaps more in line with the policies proposed by Donovan. In a speech a few weeks ago ahead of the Budget, Reeves made it clear that individuals would be called upon to play their part in the wider fiscal path.

“If we are to build Britain’s future together, we will all have to contribute to the effort,” she said. “Each of us must do what we can for the security of our country and the brightness of its future. There is a reward for getting these decisions right, for building more resilient public finances – with enough room to withstand global turmoil.”