As we consider the movement of capital over the next several decades, affluent private citizens find themselves in a remarkably strong situation. Their holdings have appreciated, their investments have yielded positive returns, and a considerable number anticipate a substantial influx of funds from their elders via inheritance.
TL;DR
- Affluent citizens are well-positioned due to appreciated holdings and expected inheritances.
- Governments, facing debt, may use incentives or coercion to access private wealth for public finances.
- Approaches include influencing markets with tax-free bonds or prudential regulation, and wealth taxation.
- Governments will likely attempt to mobilize trillions in upcoming wealth transfers to fund debt.
Nations, facing immense financial obligations and costly interest rates on their loans, are now looking at that prosperity and seeking to participate.
In recent times, governing bodies have utilized private fortunes to cover expenses, as UBS lead economist Paul Donovan informed journalists during a discussion on the economic projections for 2026—however, the crucial point is whether they'll employ incentives or coercion to generate income from citizens.
Consequently, certain options might gain greater favor. Donovan stated recently: “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.”
Economists are worried about this debt-to-GDP percentage, not the sheer amount of debt. This is because the ratio effectively shows if an economy is expanding sufficiently to produce the income needed to cover its obligations—or the interest on those obligations—to those who have lent money. Should investors in a nation's debt perceive the ratio as unstable, they might require greater returns to compensate for the perceived danger, thereby straining the government's finances even more.
By expanding the pool of debt purchasers, perhaps through incentives like tax exemptions, governments can secure additional funding without encountering elevated market rates.
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
Estate taxes will be a major concern during the Great Wealth Transfer period, as UBS projects that $80 trillion will be passed down over the coming two decades. Certain research indicates an even greater sum, suggesting that up to $124 trillion will be passed down will move from older family members to their descendants.
Donovan has previously cautioned that elected officials will probably be contemplating how this change might assist in improving their own prospects. The lead economist stated in a video released 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.”
Amidst escalating worldwide public debt now surpassing $100 trillion, both elected officials and citizens are expressing mounting apprehension regarding this matter. While economists have described President Trump’s methods as “peculiar,” it's undeniable that his trade policy has generated billions for The United States' financial standing.
The White House has also put forward the notion of selling “gold cards” to wealthy would-be immigrants, with Trump remarking that it would be “nice” to balance a portion of the debt using the revenue. However, this proposal was set aside in February, with further particulars anticipated within two weeks; no such fine print has been substantiated.
The U.K.'s Chancellor, Rachel Reeves, has taken a distinct path—possibly aligning more closely with Donovan's recommendations. In a pre-budget speech a few weeks ago, Reeves emphasized that citizens will be expected to contribute to the broader financial direction.
“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.”