Budget Reflections

That the Canadian military’s capital equipment procurement machinery is chronically dysfunctional is a given. As program after program stutter-stopped to a standstill over the years, various internal and external reviews have confirmed the problem. It has reared its ugly head again recently in the new Liberal administration’s inaugural budget, when Finance Minister Bill Morneau told the House of Commons that “to ensure that funding is available when key capital acquisitions will be made, we will reallocate funding for large-scale capital projects from the 2015-16 to 2020-21 period to future years.”

The Liberals’ 269-page main Budget document (defence per se accounted for a mere four of those pages) says that major projects, including operating and sustainment costs, will be managed on an accrual basis, amortized over the asset’s useful life. For example, a $1-billion capital project with a 25-year life would typically have an amortized annual cost of $40 million. The total funding available to the Department of National Defence for large projects is currently $84.3 billion over 30 years out to 2044-45 and $2.8 billion annually going forward.

The reallocation announced by Morneau amounts to nearly $3.72 billion – a small fraction of projected overall DND costs which are likely to top $500 billion by 2028. The Canada First Defence Strategy unveiled by the former Conservative government in 2008 and promising “stable and predictable defence funding”, projected the total outlay at some $490 billion over the first 20 years, including at least $45 billion for major acquisitions such as ships and aircraft.

The Liberals’ approach to capital equipment replacements is to be underpinned by what the minister said would be “an open and transparent process to create a new defence strategy that will deliver a modern, more agile and better-equipped military.” We’ve all heard that before. The Liberal’s tweak will now include consultations with a broad spectrum of “experts, allies and partners, as well as Parliament.”

During the media lockup for the Budget, Morneau told reporters the “re-profiled” procurement funding was “the appropriate action to take to make sure that our military has the appropriate equipment […] that they need.”

Whatever you call it, re-profiling, deferment or sequestration, isn’t a new concept within DND and, with so many failed projects in recent years, the department has struggled to spend authorized funds, watching impotently as billions in budget dollars (routinely now) lapse.

Taking that “appropriate action” evidently is already under stress as the Cabinet faces the need to approve an initial down payment on the Royal Canadian Navy’s new Surface Combatants. Morneau’s staff has been pressing DND to produce firm numbers, but complex variables have made ADM(Mat) reluctant to be specific.

This scenario has played out extensively during the politically-contentious fighter replacement program, which has been stalled for years and remains under review.

A year ago, a then Public Works spokes­person, told FrontLine that “until a decision is taken on the path forward, all options remain on the table.” That statement is somewhat complicated by the Liberals’ election campaign assertion last fall that it would not buy one specific fighter.

“We will immediately launch an open and transparent competition to replace the CF-18 fighter aircraft,” the Liberals said. “The primary mission of our fighter aircraft should remain the defence of North America, not stealth first-strike capability. We will reduce the procurement budget for replacing the CF-18s, and will instead purchase one of the many, lower-priced options that better match Canada’s defence needs.”

By purchasing what they describe as a “more affordable” alternative, the Liberals expected the savings would be invested in the RCN “while also meeting the commitments that were made as part of the National Shipbuilding and Procurement Strategy” announced in June 2010 by the former Conservative government.

However, the Liberals also said “we will have the funds that we need to build promised icebreakers, supply ships, arctic and offshore patrol ships, surface combatants, and other resources. […] These investments will ensure that the Royal Canadian Navy is able to operate as a true blue-water maritime force, while also growing our economy and creating jobs.”

The reallocation of funding for new ships and aircraft to at least 2021-22 is simply a reflection of the realities in the procurement process. The RCN won’t see any of its major new Canadian-built ships until at least then, about the same time frame for the RCAF’s equally overdue plan to replace its CF-18s, the first of which entered service in October 1982.

PO2 Michael Surette supervises Operations Room personnel during Action Stations aboard HMCS Vancouver.

Other elements of the “steadfast” commitment outlined in the main budget document included ensuring that the Canadian Armed Forces overall have the equipment and personnel required to protect sovereignty and defend North America while also contributing to UN peacekeeping efforts and to coalition operations abroad.

As for military personnel and their families, the government reiterated its determination to improve the overall climate, including providing modern living, working and training facilities. This would be underwritten by some $200 million in infrastructure spending, including:

  • $77.1 million on projects to support military readiness, including live-fire ranges, airfields and hangars, and naval jetties;
  • $67.4 million on projects to support the Reserves, including repairing and maintaining armouries;
  • $50 million for housing construction and upgrades; and
  • $6 million to support northern operations, including investments in airfield ramp reconstruction (critical to northern search and rescue), and new fire suppression upgrades for NORAD.

Morneau reiterated a commitment to improving the lot of veterans who deserved “our gratitude, our respect and our support” for having “dedicated their lives to the defence of their country.”

This would include increased disability awards for service-related injury or illness, the amounts indexed to inflation and aligned with other benefits set out in the government’s New Veterans Charter.

“We will expand access to higher grades of the Permanent Impairment Allowance to better support veterans who have had their career options limited by a service-related illness or injury,” he added. “We will increase the Earnings Loss Benefit to provide income replacement of 90 per cent of pre-release salary for injured veterans, and index this benefit so that it keeps pace with inflation.”

In continuing to reverse the previous Conservative administration’s closures of Veterans Affairs Canada offices across the country, more case managers will be hired to reduce the client-case worker ratio to no more than 25 to 1.

Last year, Parliamentary Budget Officer Jean-Denis Fréchette warned in a report that the government would need to either pour more money into its defence budget or scale back its “unsustainable” ambitions if DND was to be on a sustainable footing.

A short while later, his predecessor, Kevin Page, who had a track record of being at odds with the very government that hired him, said the Harper Conservatives had barely a passing grade on defence spending. “Spending in real terms is even lower than when they came into office in 2006,” he said in a broadcast interview. “Something like a D, D+,” adding that “as a result of the expectations that were raised […] you have to give them a very weak mark.”

Harper, who burned through four defence ministers during his nearly 10 years in office, had been one of the toughest-talking leaders with the NATO alliance. However, the hard numbers in a briefing note for the Deputy Minister of National Defence, showed that annual DND spending in 2015 was $2.7 billion lower than in 2011 as the department had to get in line with the Conservatives’ determination to balance the government’s budget.

When he was Chief of the Defence Staff, General Rick Hillier told the 2009 Conference of Defence Associations that the military, under the Conservatives, were beginning to emerge from a “decade of darkness” of former Liberal administrations. Six years later, then Defence Minister Peter MacKay (2007-13) promised that the Conservatives would not see DND “return to the difficult years of Liberal governance” and that the Conservatives remained “committed to delivering a modern, multi-role, combat-capable Canadian Armed Forces able to respond to current and future challenges.”

The records show, however, that while the Conservatives did increase defence spending during their first three years in office, the knives came out earlier in the last decade as they tried to reduce a long series of annual deficits.

It remains to be seen what grade Fréchette will give their replacement and how he will perceive the Liberals’ fiscally-realistic decision to defer funding for key capital projects. Hopefully the new Liberal government’s budget track will not presage another “decade of darkness” from which the Canadian Armed Forces would have tremendous difficulty emerging.

Hudson on the Hill

The role of Hudson is being filled by contributing editor Ken Pole.