Ahead of next month's federal budget a new analysis indicates the blowout in government debt in response to funding support for Australians during the pandemic is sustainable.
However, it could be a decade before it starts to steadily decline, the independent Parliamentary Budget Office says in a report released on Wednesday.
Faced with the first recession in nearly 30 years, the Morrison government hurled money at protecting the economy through support measures like the JobKeeper wage subsidy and JobSeeker coronavirus supplement.
This funding saw government debt as a proportion of the economy expand from 28 per cent of GDP to an expected 40 per cent in 2020/21 and to more than 50 per cent in 2022/23.
It is expected to remain above 50 per cent for at least the next decade.
"Public debt levels may become concerning if they result in governments having to devote an ever-increasing share of their revenue to meeting their interest expenses," the PBO warns.
This could lead to a need to significantly increase taxes, cut spending, sell assets and/or further increase debt, it says.
Its Fiscal Sustainability report expects Australia should be able to sustainably maintain its debt over the next 40 years.
This is provided future governments are able to implement policies to achieve budget balances similar to historical precedents, even modest deficits.
"Debt is likely to steadily decline ... for at least 13 years from 2030/31," the PBO says.
"The main driver of the debt reduction is the historically low interest rates on debt issued over the past year, coupled with the expectation that interest rates are likely to remain low for the next decade."
