Hudson on the Hill
Canada’s spending on all things military is arguably open to question by many metrics, but the main one remains the amount expressed as a percentage of gross domestic product. Led mainly by the U.S. within NATO, there is a long-standing complaint that Canada continues to fall short of the alliance’s stated goal that its members’ defence spending should equal a minimum of 2% of gross domestic product.
In 2022, Canada’s defence outlay – as reported in April by the internationally-respected Stockholm International Peace Research Institute (SIPRI) – amounted to US$26.9 billion.
Although up 3% from the previous year, the total only amounted to 1.257% of Canada’s gross domestic product, which was just under $2.14 trillion. That compares with a post-Cold War peak of 2.7% in 1970.
The pressure has been increasing, with Secretary General Jens Stoltenberg reminding members that the 2% target should be considered the “bare minimum,” but Canada continues to dodge that requirement.
There are obvious ramifications for the Canadian economy, and on the bottom line for taxpayers. It’s a political reality for Prime Minister Justin Trudeau’s minority Liberal government as they deal with economically-anxious Canadians and an increasingly-combative Conservative Opposition in the House of Commons.
The next general election isn’t scheduled until late 2025 but there remains the possibility – remote for now – that the New Democratic Party could withdraw its support from the Liberals, or that Trudeau could call another snap election as he did in 2021, only halfway through his previous mandate.
Parliamentary Budget Officer Yves Giroux set out the scope of the political reality as it applies to defence spending when he estimated in June 2022 that, having increased spending since 2014, Canada would need to spend an additional $75.3 billion over the next five years to hit NATO’s target, which he said “remains out of reach over the medium term.” But he also predicted that “the gap between military expenditures as a percentage of GDP and the […] benchmark will decrease.”
Will that gap decrease enough to satisfy NATO and silence critics at home? Probably not. Political dithering and the Department of National Defence’s perennial inability to spend its annual budgets because of the government’s bureaucratically-cumbersome procurement processes and policies, are the biggest stumbling blocks to efficiency.
For several decades, the various administrations have failed to resolve these issues. Most so-called solutions have tended to add more levels of bureaucracy, approvals, red tape and delay rather than streamline and speed up the process.
Then there’s the Prime Minister’s dialectic dance when asked about a recent report in The Washington Post, based on leaked U.S. Defense Department documents, that he privately told NATO officials that Canada will never reach the 2% target. The report suggested that our allies are increasingly unhappy with the lack of will.
“Widespread defence shortfalls hinder Canadian capabilities,” the Post said, quoting from documents bearing the seal of U.S. Army General Mark Milley, Chair of the Joint Chiefs of Staff. They also expressed a lack of confidence in Canada’s capacity to keep helping Ukraine, a suggestion Trudeau and Defence Minister Anita Anand have rebutted.
“I continue to say […] that Canada is a reliable partner to NATO,” Trudeau responded when asked for comment on the leaked report last month. He did not specifically mention what he was reported to have told other NATO leaders. As for the Minister, while preparing for a meeting of the Ukraine Defence Contact Group a couple days later in Germany, Anand flatly dismissed suggestions that allies are unhappy.
Furthermore, she had reassured David Cohen, the U.S. Ambassador in Ottawa, about Canada’s commitment. “We spoke about our defence spending, generally speaking, and we discussed the upward trajectory of our defence spending and in fact how Canada continues to make foundational investments for the Canadian Armed Forces.”
It’s possible that those investments – including a promise of nearly $40 billion on North American air defence modernization, the pending $19-billion-and-counting acquisition of new fighters and, further on the fiscal horizon, the potential acquisition of new maritime surveillance aircraft (currently in Options Analysis Phase) to replace the aging Lockheed Martin CP-140 Auroras – could push the spending ratio closer to or even over the NATO target.
The government was recently pressed on the issue by dozens of former defence and security officials, five former defence ministers, and nine former Chiefs of the Defence Staff under the umbrella of the Conference of Defence Associations.
“There is no more important responsibility for the federal government than protecting Canadians against all threats foreign and domestic,” they wrote in an open letter, noting that successive governments have chipped away spending since the Cold War.
“Now is the time to fully discharge the commitments we have made to our allies and partners in sharing the burden of the collective security, commitments which are essential to safeguard our peace, prosperity and way of life.”
When it was taken up in Parliament, Trudeau acknowledged the call for action but rightly pointed out that governments wrestle with many often-conflicting priorities. “To govern is to choose, and the choices we are making are consistently about making the very best future for Canadians,” he said.
According to the SIPRI report, Canada’s defence spending in 2022 ranked it 15th globally in actual money spent and sixth within NATO. The U.S. was at the top of both rankings at US$877 billion, which works out to nearly US$2,800 per capita. Compare that with Canada’s outlay which, for comparison’s sake, works out to US$725 or roughly a quarter of the per capita cost.
But at what cost? Both countries have run up successive annual deficits by spending more than they earn through taxes and other sources. The U.S. national debt is now more than $31.7 trillion and its political response is to keep on borrowing. Canada’s net debt at the beginning of April 2023, was some $1.14 trillion as we continue to cover annual deficits by borrowing, albeit mostly from ourselves through bond sales and such.
That’s something for governments and, ultimately, taxpayers to consider in the struggle with NATO’s artificial construct of what constitutes an adequate defence budget.
As if the NATO’s 2% target isn’t enough of a challenge for Canada and others, it seems likely to become a “floor” after a July NATO summit in Lithuania. Julianne Smith, the U.S. Ambassador to NATO, expects the focus will be “on making the two percent target an enduring commitment.”
Echoing Stoltenberg, she said that “if we have a group of countries that cannot announce that they have hit the 2% target by 2024, it is the expectation that countries will have a plan in place […] because collective security is obviously something that requires resourcing.”
While acknowledging Canada’s 2022 budget commitment to boost defence spending by $8 billion over five years and our “major contributions across multiple fronts”, Smith pointed out that NATO evaluates its members on three axes: capabilities, contributions to NATO operations, and cash. “We do believe that the 2% target is where countries should land in order to realize the plans that we’re about to roll out.”
Results of a national April 30 to May 3 Nanos Research poll of 1,800 Canadians indicated that 64% of Canadians support increased defence spending to hit the NATO target. Would those same respondents be willing to pay higher taxes to accomplish that – or cut services?
To be clear, this is no argument against Canada’s defence spending, especially since we “punch above our weight” in many ways; rather, it’s a call for better use of the financial resources we have.
Hudson on the Hill
The role of Hudson is being filled by contributing editor Ken Pole.