First, interest rates and borrowing costs aren't really the issue in the short-term. Borrowing rates are incredibly low right now. Question is only how soon we return to normal budget balances. bankofcanada.ca/rates/interest… 
To explore this, I run some scenarios based on the PBO estimates released this morning. But I project beyond 2020 to give a sense of magnitudes. (Lots of uncertainty, but still helpful!) Note: *these are scenarios, not predictions*.
First, the economy will contract ... a lot. This cuts into revenue. Let's assume total income in the economy returns to baseline by 2024/25. Here's what federal revenue might look like. ~$125b cumulative reduction.
Second, let's assume the temporary measures are unwound as planned but elevated spending remains until 2024/25 (higher EI, stimulus, etc.). Here's what fed spending looks like. ~$210b cumulative increase.
Together this implies large primary deficits in the near-term. This is a key component of debt sustainability analysis. Peaks at 11.5% of GDP this year, and in this scenario it returns to baseline by 2024/25.
So, this means a significantly higher debt-to-GDP ratio in the short term. But if primary surpluses return then debt-to-GDP falls once again.
These scenarios do build in rising interest rates. But given today's low rates, the effective borrowing rate for govt could remain below prior projections for some time. Here's what I used.
Now, let's go nuts and boost rates eventually to ... 6%. Just to show sensitivities, not suggesting this is at all realistic. Even here we see debt-to-GDP not rising unsustainably. This matters.
Rising debt does matter. There's an opportunity cost here: interest means higher taxes or lower spending than could otherwise be the case. Here's the original scenario's interest as % of revenue.
Even though a 12% interest/revenue ratio is higher than recent years, it is not historically so. Here's Canada full history. This is manageable!
Of course, we can bring down federal debt levels in the future by increasing the primary surplus. Higher taxes or lower spending. Those who want this should be specific about plans.
To illustrate one option. Say we return to 7% GST (up from current 5%). This raises revenue by ~0.7% of GDP. Let's say this starts in 2022/23. Effectively, returns to pre-COVID level by early 2030s (~10 years to "repay" COVID-debt!).
So, there is no concern yet about debt sustainability. Depends on ability to wind down COVID measures. And as @kevinmilligan has pointed out, this means controlling the virus!
To finish: these are just scenarios *not predictions*. They illustrate magnitudes. Those claiming sky-is-falling debt issues for federal government should show their work! Helpful if they do. Not helpful if they don't.
Also, there are some serious provincial debt issues we need to talk about. Challenges predated COVID, made worse by it. A topic for another day, though. /fin
