Canada eyes new era of defence spending with boost to NORAD and North

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UPDATE: The federal budget for 2022 has been released. Read the highlights here.

Within a day of last week’s announcement that Canada would buy American-built F-35 fighter jets, Defence Minister Anita Anand was on the phone with the Pentagon, telling officials there that the $19-billion procurement would be the most significant investment in the Canadian Air Force in more than 30 years.

Ms. Anand told her U.S. counterpart, Secretary of Defence Lloyd Austin, that replacing Canada’s Cold War-era CF-18 fighters would ensure Canada is “well equipped to defend North America into the future, and that Canada can continue to meet its commitments” to NORAD and NATO, according to her office.

Russia’s invasion of Ukraine, the biggest global security crisis in decades, has prompted Western countries to hike defence spending – in particular Germany, which has pivoted sharply from its post-reunification pacifism and committed US$113-billion to additional military expenditures for the Bundeswehr.

Canada so far has not committed to any German-like spending increase. But this country’s role in the world will be a key theme of the 2022 federal budget to be unveiled on Thursday, which the government has broadly hinted will include a boost in military expenditures.

Ms. Anand’s office is promising action soon. “In the short term, Minister Anand will present a robust package to modernize NORAD and ensure our Arctic sovereignty in the years to come,” her press secretary, Daniel Minden, said in a statement.

But any such promises of action will have to be weighed against Ottawa’s delay-ridden track record on military procurement, as well as five-year-old accounting changes that exaggerate the progress Canada has made in fulfilling its North Atlantic Treaty Organization spending commitments.

Prime Minister Justin Trudeau’s government has previously made splashy announcements about defence spending that turned out to be less impressive than they initially seemed. In 2017, the government unveiled a plan to boost spending to $32.7-billion in 2026-27 from $18.9-billion in 2016-17. But procurement delays meant some of that money went unspent and had to be pushed back to later years.

Despite that 2017 plan, Canada has yet to hit NATO’s military spending target for the alliance’s members.

NATO calculates that Canada devoted the equivalent of 1.36 per cent of its gross domestic product to defence spending in 2021. That’s significantly below the 2-per-cent commitment all NATO allies have made – a target aimed at providing a common goal for the richer and poorer members of the alliance.

David Perry, president of the Canadian Global Affairs Institute, said Canada hasn’t spent 2 per cent of GDP on its military since 1990, when the Cold War was winding down.

Canada would have to spend an additional $17-billion annually to reach its 2-per-cent commitment, Mr. Perry said. That would mean 2021-22 defence spending would have to rise to $41.3-billion instead of the actual budgeted amount, which is $24.3-billion.

How much will Canada’s military spending change in this week’s budget? While visiting Europe last month, Mr. Trudeau said he would consider spending more on defence. Ms. Anand told the CBC in mid-March that she has presented options to cabinet that could result in Canada exceeding the GDP threshold of 2 per cent.

At first glance, it looks like Canada is well on its way to hitting that goal. In 2015, this country spent the equivalent of 1.01 per cent of GDP on defence, barely half of the official NATO target. By 2016, that figure had risen to 1.16 per cent. In 2017, it shot up to 1.44 per cent. According to figures released on Thursday, Canada continues to hover around that mark. Defence spending sat at 1.44 per cent of GDP in 2020 and 1.36 per cent in 2021.

But Canada’s march toward the NATO goal isn’t quite as impressive as it seems. In 2017, the federal government broadened its definition of what counted as defence spending. Now included in Canada’s total is spending on things such as military pensions and other defence-related outlays that are outside of the Defence Department’s own budget. That accounting change is in accord with NATO’s rules.

If not for the change in the calculation method, government figures suggest, Canada’s defence spending would have remained essentially flat. According to numbers in a 2017 military strategy document, defence spending under the old measurement was projected to hit 1.01 per cent of GDP by the 2019-20 fiscal year.

NATO’s official figures don’t break out spending by departments other than Defence, but the federal government’s own projections from 2017 indicate it expected spending from outside the department to equal one-fifth of overall defence outlays that year.

That proportion was projected to decline over time as core defence spending ramped up. But spending outside of the Defence Department was still forecast to equal one-eighth of Canada’s official NATO number by 2024.

Canada also falls short on another of NATO’s key measures of military effectiveness: the proportion of a country’s defence budget spent on equipment, rather than on personnel or infrastructure. The alliance sets a guideline of 20 per cent for spending on equipment, a goal Mr. Perry said is aimed at discouraging NATO members from creating parade-ground militaries that lack modern fighting capacity.

Canada has been consistently below that mark since 2014, not quite cracking the top half of NATO members. Increased spending since 2017 has pushed the proportion of defence dollars spent on equipment somewhat higher, but that increase has been much slower than what was envisioned in the 2017 defence plan.

This is explained partly by procurement problems, which have repeatedly delayed equipment purchases. NATO only counts defence expenditures when cash is actually paid out, not when big spending ambitions are laid out in an annual budget.

Canada’s estimates of its defence spending as a proportion of GDP often end up being scaled back once actual figures are available. Mr. Perry said that is a result of those procurement problems, which push cash outlays into future years.

Parliamentary Budget Officer Yves Giroux has said Ottawa’s record of persistent procurement delays raises doubt about the feasibility of a quick buildup in response to the Russia-Ukraine war. A recent report from the PBO found that, from 2017-18 to 2020-21, there was a cumulative shortfall of nearly $10-billion between the Defence Department’s planned capital spending and what was actually spent.

The Globe and Mail reported last week that plans to establish a military refuelling facility in Canada’s High Arctic, already repeatedly delayed, have once again fallen behind schedule. The Defence Department said the Nanisivik Naval Facility will not be operational until 2023 – 16 years after it was first announced.

The Liberals now appear ready to proceed on many long-delayed spending decisions, including the move to purchase F-35s – which is the outcome of a procurement process that can be traced back to 2010.

Another big-ticket announcement likely to be folded into the next budget is a suite of spending measures to replace the antiquated North Warning System, a chain of jointly operated U.S. and Canadian radar stations that includes dozens of sites from Yukon to Labrador. Its job is to detect airborne threats – originally long-range bombers. Those threats have multiplied now that Canada’s adversaries have hypersonic missiles that can fly at five times the speed of sound and change course mid-flight.

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But even as Canada looks to boost investment, defence analysts say the country isn’t effective at spending its existing military budget.

Part of the problem is the military’s desire to “Canadian-ize” big-ticket items. Because Canada can’t afford to buy several types of equipment to serve different purposes, the military pushes to add multiple functions to whatever it purchases.

For instance, a 2006 plan to spend $2-billion on 15 Chinook battlefield helicopters ballooned to nearly $5-billion by 2009, in a deal that was criticized at the time by Canada’s auditor-general.

Mr. Perry said Canada is still recovering from a “decade of darkness,” from 1989 to the mid-2000s, when military budgets were effectively flat or declining. This coincided with the end of the Cold War and massive deficit reduction measures that began in the 1990s under then-finance minister Paul Martin.

Now, he said, the government is overwhelmed with the volume of big-ticket items it must replace, including warships and fighter jets. “If you do no maintenance on your house for 15 years at all, and then you start doing maintenance, you’ve got to fix a tonne of stuff at once,” he added.

Any effort to ramp up military spending will need to overcome not just logistical hurdles but political ones as well.

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James Fergusson, deputy director of the Centre for Defence and Security Studies at the University of Manitoba, said he believes governments receive no political benefit from increasing spending on defence and experience no political fallout from reducing spending.

There is an underlying isolationist sentiment in Canada, he said, and security threats are an abstraction for most people in our “fairly benign part of the world.” The general assumption is that the United States would rush to our defence in any crisis, he added.

“In this context, the question becomes … what is the minimum we need to pay to ensure we have some influence with American decisions about defending North America?”

Prof. Fergusson thinks Russia has changed Ottawa’s attitude toward defence spending.

What remains to be seen is how much of a difference this makes in the military budget come Thursday.

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