The main observation from assessing the long-term implications of Budget 2021 is that the pandemic and government policy decisions have led to considerable deterioration in government finances. The debt-to-GDP ratio will not reach its pre-pandemic level over the next 31 years even under a scenario where trend GDP growth is boosted as a result of the policy measures in the budget. There is a risk that if the assumptions underlying this assessment become less favourable (like a higher interest rate) or the government introduces expensive permanent new spending programs, fiscal policy would become unsustainable in the long run, which could have adverse effects on the credit rating of the federal government. In this discussion of fiscal sustainability, there are several relevant concepts.
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