As Strong, Secure, Engaged approaches its second anniversary, the Trudeau government’s record of delivering on its defence policy is a largely positive one. While it isn’t spending as much as anticipated on capital (equipment and infrastructure), that expenditure line is increasing in inflation adjusted dollars, and total defence spending is meeting the policy’s expectations.
In Strong, Secure, Engaged’s first year (2017/2018), overall defence spending actually exceeded the level of spending projected by roughly $2 billion, reaching $23 billion. As a share of GDP, the latest NATO statistics show that translated into 1.4 per cent of GDP, again surpassing the projected share of 1.3 per cent.[1] The higher than anticipated spending came on the back of a nearly $2 billion one-time pension adjustment. But had that pension funding not flowed, defence spending would have ended up almost exactly as outlined in the document. For the second year of the policy, the allocation to DND in the 2018/2019 estimates documents shows the department on a trajectory of once again meeting the overall spending projection outlined in the policy, while falling slightly short of projected spending as a share of GDP. Because of the one-time infusion of pension funding in 2017/2018 that is non-recurring, defence spending as a share of GDP is actually slated to decline from the year prior, to 1.23 per cent of GDP, very close to the 1.25 per cent projected in Strong, Secure, Engaged. In short, Trudeau is spending what he said he would on the military as a whole.
Below the topline spending data, the Trudeau record when it comes to Capital spending is more complicated. Three trends have emerged, two positive and one negative – albeit predictable. Regarding the latter, actual spending on Capital (the money that actually gets spent to acquire equipment or infrastructure) in the policy’s first year and the allocation of Capital funding (the money that Parliament gives DND each year, based on the departments spending plan) in its second are both significantly less than projected in the policy. In the first year, $2.5 billion less than projected was spent, and in the second, $2.3 billion less than projected has been allocated. As defence officials have indicated, four broad factors have explained the difference: contingencies not being used, project efficiencies, industry non-delivery and problems internal to government. Of these, the first two do not represent problems, per se, as they do not reflect delays in acquiring capability. However, they still contribute to actual Capital expenditures falling short of what had been projected, which is important for Canada’s alliance commitments. The lesser recognised of the two financial pledges allies made at the NATO summit in Wales was that 20 per cent of allied defence spending would go towards equipment and related R&D. While under Strong, Secure, Engaged, Canada indicated clearly it would never meet the NATO target of spending 2 per cent of GDP on defence, the document had indicated it would quickly reach, and then exceed the 20 per cent target for equipment. Not spending as much as projected in Strong, Secure, Engaged suggested would happen on Capital, even for ‘good’ reasons, leaves Canada both short of the mark on this NATO spending target, and short of what it communicated it would achieve under the policy.
On a positive note, Capital spending is increasing in real dollars. For 2017/2018, final spending was $3.7 billion, an increase of $700 million over the year before (figures are $2017/2018). Similarly, the final capital allocation for 2018/2019 has provided DND with $4.2 billion to spend on infrastructure and equipment. This means that when DND’s books are closed off for 2018/2019, capital spending will likely have risen by more than 25 per cent in inflation adjusted dollars, compared to 2016/2017 – the year before Strong, Secure, Engaged was introduced. This is the case because a second positive development with Canada’s defence capital spending is that DND is back to spending most of its money. For roughly a decade prior to Strong, Secure, Engaged, DND had been under-spending its annual allocation of capital funds by several hundred million annually. This historically unprecedented divergence between the funds allocated by Parliament and actual defence spending meant that while it was occurring, as much as 30 per cent of planned spending would not actually occur. Happily, DND has returned to a situation where its planned and actual spending are more or less in line with each other again.
Finally, the publication of Budget 2019 made clear that the
funding underpinning Strong, Secure,
Engaged will remain intact for the duration of the current government. Given
the shortfall between projected capital spending in the document, and the
actual expenditures and allocations to date, another reprofile of the funding
set aside for defence’s capital assets could have, but did not, occur. Effectively,
the funding underpinning Strong, Secure,
Engaged remains intact. The challenge for defence remains getting all that
money out the door.
[1] As part of the Defence Policy Review that led to Strong, Secure, Engaged Canada revised the way it reports defence spending to NATO, and now includes greater amounts of other government department’s spending than it did previously. This new calculation means Canadian data for 2015 on is not directly comparable to that from earlier years.
Dr. David Perry is the Vice President, Senior Analyst and a Fellow with the Canadian Global Affairs Institute. He is the author of multiple publications related to defence budgeting, transformation and procurement, published with the Canadian Global Affairs Institute, Conference of Defence Associations Institute, Defence Studies, Comparative Strategy, International Journal, and Journal of Military and Strategic Studies and is a columnist for the Canadian Naval Review.
(Image: National Defence)