Artificial intelligence is not only transforming how economies grow; it is changing how states fund themselves. The central fiscal challenge of the AI era is straightforward but profound: economic value is shifting away from employment and towards capital, scale, and intangible assets, while public finance systems remain heavily anchored to taxing labour. Left unmanaged, this mismatch creates what has been described as AI fiscal derailment—persistent revenue stress, reactive taxation, and rising social instability. This paper advances a constructive thesis: sovereign wealth funds offer an essential intermediate solution that allows governments to navigate this transition without undermining growth or social cohesion.
As AI adoption accelerates, productivity gains increasingly accrue to owners of capital, data, algorithms, and organisational scale. Employment and wages adjust more slowly and unevenly. The result is a weakening of labour-based tax revenues at precisely the moment when societies face higher demands for income stabilisation, retraining, and public services. Attempting to close this gap primarily through higher employment taxation is economically fragile and politically unsustainable. It risks discouraging participation, slowing adjustment, and amplifying inequality—while failing to track where value is actually being created.
Sovereign wealth funds provide a bridging mechanism between today’s fiscal architecture and tomorrow’s economic reality. Rather than treating AI-era revenues and transition windfalls as flows to be consumed, governments can capitalise them into public assets. Over time, the returns on these assets—dividends, capital gains, and portfolio income—become a non-labour source of fiscal capacity, reducing reliance on taxing employment while maintaining funding for social stability.
This shift is not theoretical. Many states already capture temporary or declining rents: carbon pricing revenues, legacy energy profits, windfalls from transition-era price shocks, or taxes on sectors facing structural decline. Sovereign wealth structures allow these time-limited revenues to be transformed into durable public equity stakes, aligned with long-run productivity growth rather than short-run employment cycles. In effect, the state substitutes volatile labour taxation with a claim on the economy’s evolving capital base.
Critically, this approach creates fiscal space to support a future in which direct employment may no longer be the sole—or even primary—channel through which individuals access income and services. As AI reshapes work, societies are likely to rely more on mechanisms such as universal basic income, negative income tax systems, or shared AI-enabled public services in healthcare, education, mobility, and administration. Funding these systems sustainably requires income streams that are not tightly coupled to jobs. Sovereign wealth returns offer exactly that: a way to socialise part of AI-driven productivity without penalising employment or innovation.
This paper emphasises that this is an intermediate strategy, not an endpoint. Sovereign wealth funds do not replace markets, nor do they eliminate the need for taxation. Instead, they smooth the transition between two regimes: one where labour income anchors public finance, and another where capital income, public equity, and shared technological services play a larger role in maintaining welfare and social legitimacy.
Equally important is what this strategy avoids. By protecting frontier AI, digital infrastructure, and innovation-intensive sectors from opportunistic taxation, governments preserve future growth and international competitiveness. Capitalisation is instead focused on declining or exhaustible rents, making the transition both economically efficient and politically defensible.
For policymakers and national security advisors, the strategic implication is clear. Fiscal resilience underpins social stability and geopolitical strength. States that rely solely on reactive taxation to manage AI disruption risk capital flight, polarisation, and loss of strategic autonomy. Those that build public balance sheets aligned with AI-driven growth can stabilise expectations, reduce risk premia, and maintain cohesion through periods of profound technological change.
The core message of this paper is pragmatic and forward-looking. AI does not require a sudden leap to post-work utopias, nor does it justify clinging to labour taxation models under strain. Sovereign wealth funds provide the missing fiscal bridge—allowing societies to move, deliberately and credibly, toward a future where prosperity is shared not only through jobs, but through collective ownership of the productive capacity AI creates.
In the AI era, the question is no longer whether economies will change, but whether states design institutions that allow citizens to benefit from that change without instability. Sovereign wealth is one of the few tools capable of doing so at scale.
Thanks for reading The Rethink series. All views expressed are the writer’s own and do not necessarily reflect those of ASRA, its members, or host organization, UN Foundation. Stay connected and keep exploring — discover more Rethink pieces suggested below and under “View” on the Events & News page.
