Vital updates:

• Finance Minister Morneau’s financial update today gave the size of the budget deficit at $343 billion. In fall 2019, Minister Morneau projected that the deficit for 2020-2021 would be $28.1 billion. As of June 25, the Government of Canada has spent $174.1 billion in direct support for individuals and businesses and $19.4 billion in federal funding for health and safety measures. The last projection of the Parliamentary Budget Officer on June 28 projected a deficit of $256 billion for 2020-2021. Relative to GDP, this deficit will be the largest since World War II.
• A recent analysis by Scotiabank (PDF link) estimated that that Canada’s real GDP would have declined by 10.3% in 2020 (versus their current forecast of -7.3%) absent the substantial discretionary fiscal response. Furthermore, a more prolonged recovery would only see the output gap closing by early 2023, a full year later than Scotiabank’s current baseline. Net debt as a share of the economy would have surged well above 40% in any case as automatic stabilizers would kick in against a larger GDP shock. It would stabilize only a few percentage points below current baseline projections. In other words, Scotiabank reports, today’s fiscal spending is contributing to substantially better economic outcomes while raising net debt levels only marginally.
• Fitch Ratings recently downgraded Canada’s rating to AA+, but there was little to no response from markets. Canada’s net government debt, as a percentage of GDP, is still on parity with or below peer countries such as the USA, France, Italy, or Japan, and the long-term outlook for Canada is favourable when compared with other countries. The debt-to-GDP ratio, now at 49.1%, still remains significantly below the 1995-1996 peak of 66.6% and is at the level reached in 1999.
• Today, the province introduced the COVID-19 Economic Recovery Act, proposed legislation that is intended to lay the foundation to restart jobs and development, strengthen communities, and create opportunity for people in every region of the province. The Act proposes to change 20 pieces of current legislation that govern the province’s schools, municipalities, and justice system. Leaders of opposition parties expressed concerns that some parts of the legislation have nothing to do with COVID-19.
• This morning, the Minister of Indigenous Services, Marc Miller, and Perry Bellegarde, National Chief of the Assembly of First Nations (AFN), announced the signing of a protocol agreement establishing a new structure to support the implementation of An Act respecting First Nations, Inuit and Métis children, youth and families (Bill C-92). The protocol agreement that was signed today provides, among other things, for the establishment of a joint financial table. First Nations and Canada will therefore be able to discuss funding possibilities for First Nations governments wishing to take over their own services for their children and families.

Reading recommendations:

• Massive deficit to be revealed today begins new era of debt for Canada, Kait Bolongaro, Financial Post
• There’s no putting a shine on Canada’s fiscal picture, Nick Taylor-Vaisey, Maclean’s