New defence money no miracle cure for crippled budget

by Marie-Danielle Smith (feat. David Perry)

Embassy
April 29, 2015

Defence analysts are calling out the Harper government for boasting about a spending increase they say won’t make up for recent budget cuts, and won’t accrue real benefits until decades from now.

The federal budget announced last week includes an increase to the Department of National Defence’s annual "escalator," or increase, bringing it to three per cent beginning in the 2017-18 fiscal year.

Projections in the budget show this would create an additional $184 million in the budget the first year and continue to rise incrementally until it reaches $2.3 billion in 2026-27, for an accrued benefit of $11.8 billion over a decade.

Another $360.3 million is added to this year’s defence budget for the mission against ISIS, $7.1 million for the training mission to Ukraine and $23 million for security enhancements at military bases.

The money “will help ensure that Canada can continue to field a combat-capable military ready to serve at home and abroad,” according to the budget document.

But critics say, if anything, defence spending has served the budget itself more than the department.

“The basic storyline? The department of defence has been a significant contributor to the federal deficit over the last few years,” said Sahir Khan, senior visiting fellow at the University of Ottawa and a former assistant parliamentary budget officer.

David Perry, a senior analyst with the Canadian Defence and Foreign Affairs Institute, said because defence is such a big envelope, governments of any stripe can’t “balance the books,” as the current government has so lauded itself for, without touching the defence budget.

Defence dollars

Canada sits well below the NATO defence spending target of two per cent of GDP, at 1.1 per cent in 2013 from a high of 1.8 per cent in the early 1990s. Expenditures in 2013-14 were $21.5 billion, according to the Parliamentary Budget Office.

A report released by the office March 26 shows the current force structure at DND is “unsustainable at current funding levels.” Either the force structure would have to be changed, the funding to DND increased, or a combination of the two to sustain defence programs.

Meanwhile, the department’s operating budget has faced freezes, the 2012 austerity measures have now fully kicked in and billions in capital procurements funding have been deferred, including the $3.1 billion from 2013-14 to 2016-17 announced in last year’s budget.

The money is being deferred “to future years in which key purchases will be made.”

Deep cuts

Mr. Perry said the budget’s proposed increase won’t nearly make up for those cuts and deferrals. According to his calculations, $45 billion will have been pulled out of the defence budget, cumulatively, from 2010 to the 2026-27 fiscal year. 

Funding increases from the annual escalator will only put about a quarter of that money back into the budget, he said.

Some of the biggest losses due to budget cuts have been in civilian personnel, with staff dropping from 28,500 in 2010-11 down to 23,400 in 2013-14, according to Mr. Perry. And capital spending deferrals have been affected by how short-staffed the materiel department responsible for acquisitions has become.

“They don’t have the manpower, and the people don’t have as much training as they otherwise should have,” said Mr. Perry.

Other areas scaled back have included cuts to readiness, meaning that training and field budgets have lowered, and the national procurement budget, which funds repair, upkeep, maintenance and parts for military equipment.

New fleets ordered in recent years, like the Chinook helicopter and the Hercules aircraft, have expensive operating costs, meaning that there has been less room in the budget to maintain older fleets, Mr. Perry said. This has affected the entire defence industry, not just the department, he added.

Two more elections

Mr. Khan agreed the escalator change won’t have much of an effect, especially since the real benefits won’t accrue until two federal elections from now.

“It’s really back-end loaded and subject to a number of political events before they get anywhere near the restoration of funding compared to what they’ve given up,” he said.

With future governments, “considering the fiscal headroom that might exist at the time or doesn’t, this amount of money could look very tempting to reallocate toward other priorities,” he said.

The annual increase is also likely to fall into the operating budget, just to keep DND in the black, rather than going towards things like capital procurements, said Mr. Khan.

A more reasonable budgeting measure would’ve taken just the next five years into account, he said, the same way that things were done at the Parliamentary Budget Office.

Five-year time horizons are “the most realistic planning environment a government can have,” he said.

“In that planning environment what the defence department can really count on is 2017. Two years from now they’re going to see $164 million. That’s primarily the one they can count on. After that, everything gets a little more hypothetical.”

Time for a new plan

Bill Robinson, a defence analyst with the Rideau Institute, said he has been crunching numbers in the DND budget since about 1987. “Almost 30 years. And in that experience, I’ve never seen anything that’s promised a couple of years down the road that turns out the way it’s promised,” he said.

As far as the $11.8 billion figure goes, “I look at that and I say it’s vapour. It’s meaningless. It doesn’t pay the bills.”

He said DND couldn’t have afforded the Canada First Defence Strategy under the budgets that the government was working with when they announced the defence plan in 2008.

“They were underestimating the cost to buy all that stuff. Now their budget is lower than that, and they’re never going to catch up,” he said.

For former Parliamentary budget officer Kevin Page, it’s time for a new defence strategy altogether.

“When you look historically at commitments the government made early on, when it took office in 2006, it raised expectations...It was going to take a long-term view of defence, realizing we needed to strengthen the capital base in DND,” said Mr. Page.

“Once the recession hit and we started running deficits, the government really backed away from defence spending.”

Alternative budget

Mr. Robinson and others at the Rideau Institute have been working on an Alternative Defence Budget. The first thing it would recommend is to reduce spending back to the pre-9/11 level, he said, in the neighbourhood of $16 billion a year.

The second recommendation is to do a full review of defence policy and reduce the strength and size of the force accordingly.

“One of the things the government refuses to look at is personnel,” he said. “They won’t look at any kind of reduction in that.” The force currently employs 68,000 full-time members and 27,000 uniformed reservists. This takes up about half of the defence budget.

“If you won’t look at that number, you’ve got a big problem,” said Mr. Robinson.

“They’re really trying to do too much for the budget that even this budget is willing to give them.”