Morning Update: The projected $343.2-billion deficit due to COVID-19 will push federal debt above $1-trillion. Now what?

Good morning,

A big spike in deficit spending related to the COVID-19 pandemic will push Canada’s federal debt through the $1-trillion mark for the first time in the country’s history.

Finance Minister Bill Morneau said that the unprecedented deficit this year was a necessary response to the pandemic, and Wednesday’s report said failure to act would have added a further two points to the unemployment rate and led to a GDP decline of 10 per cent. The report also indicates a belief that the growing debt load is manageable in light of historically low interest rates.

But Wednesday’s figures are just part of an economic and fiscal “snapshot,” with a fuller update expected to come in the fall. To further help make sense of the situation, here are what some of The Globe’s economic and political writers have to say about the news.

In his analysis, tax and fiscal policy reporter Patrick Brethour said the federal government will be not much worse off, even though it is borrowing a record amount this year, as it looks to take full advantage of rock-bottom interest rates.

In his opinion piece, chief political writer Campbell Clark said two things are clear after the Wednesday announcement: the federal government had to do the expensive programs that led to a massive deficit, and it can’t keep doing them for a long time. With a second wave to worry about, the fiscal update underscores the importance of getting reopening right.

Economic reporters David Parkinson wrote in his business commentary that the Wednesday update was less like a “snapshot” and more of a historical document, reflecting a massive and costly emergency that looks to be in the rear-view mirror. Now, he said, the focus needs to be on recovery plan — a process that poses a very different economic problem and requires a very different response.

“The government demonstrated in its emergency plan that it is capable of nimble thinking and bold action. The growth plan will require no less,” Parkinson wrote.

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Tests on new syndrome in children thought to be linked to COVID-19 yield surprising results

After reports began emerging in Britain and the United States of children falling severely ill with an inflammatory syndrome linked to COVID-19, Montreal’s Sainte-Justine Hospital was the first to report a cluster of similar cases in Canada.

At the time, the new illness — multisystem inflammatory syndrome in children (MIS-C) — was thought to follow a COVID-19 infection, but blood tests for relevant antibodies were not yet available in Canada. Now, results for the cases at Sainte-Justine have come back with a surprising result: of 21 suspected cases, only four had antibodies to SARS-CoV-2, the virus that causes COVID-19.

This suggests that the new illness is rarer in Canada than originally thought. Similarly, no children in Canada are known to have died of MIS-C, and only a handful of those suspected of having it were in intensive care.

Trudeau didn’t recuse himself from cabinet decision on WE Charity

At a news conference on Parliament Hill, Prime Minister Justin Trudeau admitted that he did not recuse himself from cabinet decision to award WE charity the now-cancelled contract to administer a student volunteer grant program. When the government first announced the contract, there was immediate scrutiny over the close ties between WE Charity and the Trudeau family.

NDP MP Charlie Angus said that Mr. Trudeau “pretty much admitted he broke the Conflict of Interest Act.” This is Mr. Trudeau’s third ethics investigation since he became Prime Minister. In the previous two, the Conflict of Interest and Ethics Commissioner found he broke the law.

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ALSO ON OUR RADAR

Champagne not ruling out sanctions against Chinese officials: During Wednesday’s Question Period, Foreign Affairs Minister François-Philippe Champagne said he isn’t ruling out sanctions on Chinese government officials found to be responsible for gross violations of human rights in Hong Kong or Xinjiang. China has warned Canada to prepare for retaliation after Ottawa scaled back relations with Hong Kong.

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Ontario wants to maximize classroom time: Ontario has told its school boards to maximize the classroom time for children via a hybrid model, in which cohorts of students alternate their time in classrooms over a two-week period. This means each group would receive in-class instruction two days one week, and three days the next, and spend the rest learning remotely. But this directive would prevent school boards from taking any days away from in-class instruction to clean their buildings.

Auditor-General report on company that brokered Saudi LAV deal: The Auditor-General’s office said the Canadian Commercial Corp., a Crown company, was not properly screening potential contracts for human-rights concerns that could jeopardize an export deal. This finding goes to the heart of the debate over the controversial 10-year contract to ship hundreds of light armoured vehicles (LAVs) to Saudi Arabia, which Canadian Commercial Corp. brokered.

CBSA failed to promptly deport most people facing removal orders: In a recent report, the Office of the Auditor-General said the Canada Border Services Agency’s poor data quality and weak case management resulted in “avoidable delays” in deportation cases. It added the agency lost track of more than 34,000 people, including criminals, facing removal orders.

First day of Matthew McKnight’s sentencing: The Crown is seeking 22.5 years in prison for Matthew McKnight, a 33-year-old former well-known figure in the Edmonton bar scene who was found guilty of five sexual assaults. The defence has not yet presented its position on sentence.

MORNING MARKETS

Chinese stocks extend gains: European shares were rising again after a two-day wobble on Thursday as China’s markets continued their charge. Germany’s DAX and France’s CAC 40 were up 1.26 per cent and 0.19 per cent, respectively, just after 6 a.m. ET. Britain’s FTSE 100 slid 0.53 per cent. In Asia, The Shanghai Composite Index gained 1.39 per cent. Hong Kong’s Hang Seng ended up 0.31 per cent. New York futures were mixed. The Canadian dollar was trading at 74.11 US cents.

WHAT EVERYONE’S TALKING ABOUT

Canada’s tragic failure to prosecute an alleged war criminal

Amanda Ghahremani and Matt Eisenbrandt: “The failure to prosecute Bill Horace is not necessarily an indictment of the committed lawyers and investigators at the War Crimes Program, but of Canada’s waning interest in international accountability.”

By reducing air travel within Canada, COVID-19 has opened another equity gap

Richard Shearmur: “Air Canada’s decision, while understandable from a business perspective, has major equity implications when it comes to the Canadian metropolitan/non-metropolitan divide. Just as governments are stepping in to ensure that urban transport is maintained, so too should governments step in to ensure that small towns remain connected to metropolitan areas.”

TODAY’S EDITORIAL CARTOON

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LIVING BETTER

Ban on vaping ads in places where youth may be exposed to them to take effect next month

Health Canada is banning vaping ads in areas that youth could be exposed to, which include all retail locations and online stores that sell e-cigarettes except for adult-only establishments. The measures will take effect on Aug. 7, while some point-of-sale regulations will be implemented on Sept. 6.

MOMENT IN TIME: July 9, 1877

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Bell Telephone is founded

When Alexander Graham Bell began to experiment with electrical signals, the telegraph had already existed for more than 30 years, although it only used Morse code. Bell’s interest in sound technology ran deep, as both his mother and wife were deaf. During a summer visit to his parents’ home in 1874, while watching the currents, he realized sounds could be transmitted through electricity by controlling the intensity of the current. After receiving a patent and conducting research with partner Thomas Watson, Bell spoke into the first telephone, allegedly uttering the now-famous words: “Mr. Watson, come here. I want to see you.” The Bell Telephone Company was later formed on this day in 1877. Bell became rich by age 35, but by that point, he had largely withdrawn from the business and turned to other interests. While Bell is considered the father of the telephone and had the first patent, there is controversy around who invented it first. Italian inventor Antonio Meucci began developing a telephone design in 1849. Bell’s American rival Elisha Gray also applied for a telephone patent on the same day Bell applied for his. Today, Bell Canada – called the Bell Telephone Company of Canada until 1968 – is one of the country’s leading telecommunications companies. Vanessa Quon

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