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

Governments, with their eye-watering debt burdens and expensive borrowing costs, are eyeing that wealth—and they want in.

Policymakers have leveraged private wealth in the past to pay their way, UBS chief economist Paul Donovan recently told media at a roundtable discussing the economic outlook for 2026—but the question is whether they will use a carrot or a stick to drum up revenue from individuals.

As such, some may prove more popular than others. Donovan said last week: “Governments have long mobilized private wealth to support public finances. There are several approaches. One is to influence market behavior—encouraging individuals to buy government bonds through incentives like tax-free premium bonds, which channel savings directly into state financing. Prudential regulation can also steer pension funds toward domestic government debt, as seen in the UK after 1945, when a debt-to-GDP ratio of 240% was successfully reduced over decades.”

It is this debt-to-GDP ratio that has economists so concerned, rather than the volume of debt itself. After all, the ratio is a useful indicator of whether an economy is growing fast enough to generate the revenues necessary to repay its debts—or the interest payments on its debts—to lenders. If the customers buying a government’s debt feel the ratio is unbalanced, they may demand higher interest to offset the risk and so push the government’s budget even further.

To increase the supply of debt buyers—with individuals motivated by a tax-free incentive, for example—allows governments to borrow more without facing higher market interest.

However, there are other, less popular ways to raise revenue to pay off the debt. “More contentious options exist,” added Donovan, “Such as taxing wealth through capital gains or inheritance levies. In practice, the initial focus tends to be on financial repression—using tax incentives or regulation to direct money into government bonds—before moving toward wealth taxation.”

A timely wealth transfer

Inheritance levies will be of significant interest in the era of the Great Wealth Transfer, with $80 trillion due to change hands over the next 20 years, according to UBS. Some studies put that figure even higher, saying as much as $124 trillion will be passed down from older generations to their younger counterparts.

Donovan has previously warned that politicians will likely be wondering how this shift could help revive their own fortunes. The chief economist said in a video last month: “It seems unrealistic to suppose that governments will just sit idly by as this wealth moves around. We would expect governments to attempt to mobilize that wealth to help fund their debt, but in doing so, that denies private sector investment access to some of those funds.”

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

The White House has also suggested selling “gold cards” to wealthy would-be immigrants, with Trump saying it would be “nice” to offset some of the debt with the proceeds. That being said, this idea was tabled in February with more details promised to emerge within the fortnight—no such small print has been confirmed.

The U.K.’s Chancellor, Rachel Reeves, has adopted a different approach—potentially more in line with the policies Donovan has suggested. In a pre-budget speech a few weeks ago, Reeves made it clear that individuals will be called on to play their part in the wider fiscal trajectory.

“If we are to build the future of Britain together, we will all have to contribute to that effort,” she said. “Each of us must do our bit for the security of our country and the brightness of its future. There is a reward for getting these decisions right, to build more resilient public finances—with the headroom to withstand global turbulence.”