Why Governments May Target Private Wealth Amid Debt Crisis

As global debt levels climb to historic highs, governments are quietly preparing new ways to manage the burden, strategies that could increasingly draw on private wealth without directly taxing it, a new UBS report reveals.

Will Governments Turn to Private Wealth to Tackle Rising Debt?

Governments across the world are increasingly likely to tap private sector wealth to manage rising debt levels, primarily through indirect measures such as financial repression and selective taxation, according to a report by UBS.

The report underlined that global debt remains significantly elevated by historical standards, with developed economies expected to see debt exceed 113 per cent of GDP in the coming years. However, it stressed that the real issue is not the size of debt, but the ability to sustain it.

“Government debt is almost never repaid,” the report said, adding, “it is the ability to finance debt that matters.”

How Large Is the Pool of Private Wealth?

UBS highlighted that private wealth globally is at record highs and far exceeds government liabilities, creating a substantial buffer that policymakers may increasingly rely upon.

“The government-debt-to-personal-wealth ratio is much lower...government debt is dwarfed by the resources available to fund it,” the report stated.

The report also pointed to a massive intergenerational wealth transfer underway, noting that “over USD 80 trillion of personal wealth” is expected to change hands in the next two decades. It added that "indebted governments will not ignore this”.

Will Financial Repression Replace Direct Taxation?

Rather than introducing politically sensitive wealth taxes, governments are more likely to turn to financial repression, policies designed to encourage or compel investors to fund public debt.

“Governments are most likely to use repression to encourage or force private investors to buy bonds,” it said, adding that this would help lower borrowing costs.

On taxation, UBS suggested capital gains taxes may rise due to their relatively straightforward implementation and clearer valuation. In contrast, inheritance and wealth taxes face structural and political hurdles.

“Wealth taxes... are economically unappealing for raising revenue,” UBS said, citing challenges in valuation, high administrative costs, and potential economic distortions.

(With inputs from ANI)