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Canada pledged to spend 2% of GDP on its military. Would that transform it? Is it affordable?

For years, Canada and other NATO member countries have faced criticism for falling short of allocating two per cent of their GDP on military spending, a target set in 2014 by the military alliance.

Canada was among the allies who signed on in 2014 to aspire toward that target but has consistently failed to reach it.

However, earlier this month, NATO member leaders pledged to boost spending on national defence, agreeing to make the existing target of two per cent of GDP the minimum spent each year, with one-fifth of that going toward major equipment and research and development.

Still, it’s unclear when such a target might be realized. While Canada has agreed to the benchmark, it has not set out a plan to reach it.

The agreement also raises questions about the kind of budgetary pressures Canada would face by spending billions more a year on its military. And would that extra spending fundamentally transform the country’s defence forces? 

Can Canada afford the boost in military spending?

There would be no way for Canada to meet its NATO spending commitment without taking on significantly more federal deficit and debt than is already planned.

That’s according to Jack Fuss, director of fiscal studies at the Fraser Institute, who, in a recent Toronto Sun column, wrote that Canada couldn’t boost spending on the military “without seriously weakening its fiscal position,” unless it’s “finally willing to prioritize such spending over other currently favoured federal initiatives and programs.”

According to figures from NATO, the budget for the Canadian military in 2023 is $36.7 billion or 1.29 per cent of GDP. 

Adding 0.7 seven percentage points to reach the two per cent mark this year would mean an extra $20 billion in spending. And that would come as Canada already faces a $40-billion deficit.

“Without touching revenues, this will create a fiscal sustainability problem likely for the federal government,” Kevin Page, former parliamentary budget officer for Canada, said in a phone interview with CBC News. “So you can’t just add this to the deficit.”

 It will also create the conversation,’how are we going to finance this?, he said. 

“What would we do on the revenue side? What would we do on the spending side? Would we try to make room for it by cutting certain types of other programs?”

The heads of government of NATO countries pose for a photo on a stage in Lithuania.
NATO member leaders, seen at the NATO summit on July 11 in Vilnius, Lithuania, pledged to boost spending on national defence. They agreed to make the existing target of two per cent of GDP the minimum spent each year, with one-fifth of that going toward major equipment and research and development. (Adrian Wyld/The Canadian Press)

Pedro Antunes, senior economist for the Conference Board of Canada, said the extra spending on the military would be in line with the overall increase in spending by the Liberal government over the last number of years.

Yet an extra $20 billion would certainly be a significant “chunk of change,” he said.

“We’ve already spent so much on everything,” he said. “The fiscal situation is quite tight and we certainly wouldn’t have $20 billion available.

“I certainly have concerns about adding to the deficit. Are we essentially going to finance this with more debt? I think that’s problematic.”

Although it may not be exactly an extra $20 billion a year. The government, back in 2017, committed to long-term investments in the Canadian Armed Forces.

Taking that into account, a June 2022 report by the Parliamentary Budget Office forecast that to achieve the two per cent of GDP target military spending, Ottawa would need to spend an extra $15.5 billion in 2023-24; $14.5 billion in 2024-25; $14.1 billion in 2025-26; and $13 billion in 2026-27.

If Canada did ramp up its spending to 2 per cent, would this fundamentally change the military?

It certainly wouldn’t happen immediately, experts say. And that, in part, is because of procurement processes.

“They have not fixed the procurement processes,” Carleton University Prof. Stephen Saideman told The Canadian Press. “They have a personnel shortage. Together, those two things make it hard, just simply hard, to spend money. Even if you allocate a lot of money, the actual spending of it is hard.”

David Perry, president of the Canadian Global Affairs Institute, an Ottawa-based think-tank that covers topics including defence, diplomacy, trade, resources and development, agreed that capacity to implement is a big consideration.

“The government publishes any kind of bold new plan to spend money on virtually anything today, [and] with a few exceptions, it takes a couple of years basically to get any of that really moving. So that’s realistically what you’re looking at in terms of what it would mean for the forces.

“There’s an assumption out there that some people have that to hit that mark, we’d be talking about totally transforming our military,” he said. “I’m not entirely convinced.”

There are many “big ticket pieces” of equipment that do not currently have funded replacement programs, Perry said, including items like submarines, maritime coastal defence vessels and the current fleet of main battle tanks.

There’s also the physical infrastructure of DND, parts of which are decades old, Perry said.

“So there’s lots of different funding pressures right now that I think would soak up huge amounts of spending if the government were able to do it, without basically doing anything new.”

And any long-term infusion of cash would mean a “gradual evolution of the military, not something transformative,” he said.

Craig Stone, an emeritus associate professor of defence studies at the Toronto-based Canadian Forces College, said such a boost in spending would raise questions of what that money would be used for.

“Are we going to increase the size of the [Canadian Armed Forces] by 5,000 people? How much money does that actually mean over time?”

Or would they focus on investing in capital equipment, “so more F-35s, more modern equipment, submarines?” he said.

That kind of funding boost certainly would allow the military to do some significant capital investment and allow the Canadian military to modernize most of its obsolete equipment, he said.

But there are other challenges, Stone said.

A row of military members in camoflauge outfits.
According to figures from NATO, the budget for the Canadian military in 2023 is $36.7 billion or 1.29 per cent of GDP.  Adding 0.7 percentage points to reach the two per cent mark this year would mean an extra $20 billion in spending. (Sean Kilpatrick/The Canadian Press)

For example, the military could probably get F-35s in a reasonable amount of time because they’ve already started a process, he said. But to buy, for example, new submarines, the first issue would be whether Canadian industry has the ability to build submarines or sustain submarines once they’re built.

“And the answer to that is probably no,” Stone said. “And so who do you partner with? And that’s not even having a debate about whether it’s nuclear-powered so it actually can be under the sea ice in the Arctic Ocean.”

“That’s 10 years at least to even think about getting a submarine. It’s a complex piece of equipment and there’s not very many nations that can build them.”

As well, the defence industry has the same challenges as the rest of the manufacturing sector has — a shortage of workforce, he said. 

“You don’t have that surge capacity that you’d like to have because you don’t have the workforce to do it.”

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