Direct spending on the Canadian military could reach $163.6 billion by 2035 under the Liberal government’s proposal to meet NATO’s benchmark target of five per cent of GDP, the Parliamentary Budget Office said Tuesday.
The fiscal watchdog’s new report says meeting Canada’s defence commitments “will require substantial increases in government expenditure and investment, with important implications for economic activity, industrial capacity and the composition of production in Canada.”
Because the federal government uses an accrual method for counting defence expenditures, the impact “would increase the budgetary deficit by $63.7 billion, or 1.4 per cent of GDP,” the PBO said.
The report presents two scenarios: one with a gradual, steady increase in equipment purchases, and another where purchases are postponed. The outcome will depend on how Prime Minister Mark Carney’s government manages the increase.
In a previous report, the PBO tracked more than $18 billion set aside for military spending that lapsed under the Trudeau government. Under both Liberal and Conservative governments, it became routine to postpone big-ticket equipment purchases, with funds reprofiled to later years or lapsed and returned to the federal treasury.
Carney ordered the injection of $9 billion into defence last year to meet NATO’s old two per cent of GDP benchmark. The new five per cent target — 3.5 per cent on direct military spending and 1.5 per cent on defence infrastructure — is to be phased in gradually over the next decade. Carney has said the plan is for Canada to hit a four per cent target — 2.5 per cent and 1.5 per cent — by 2030.
Parliamentary Budget Officer Annette Ryan, who took over in the spring, told the House of Commons defence committee on Monday that the government’s plan to reach the new target after 2030 is still a work in progress.
“It’ll take some time before we can actually see the effect of all of these investments,” she said.
Ryan said the PBO has begun work to model the economic impact of the increase. “This is a very rapid increase,” she said in French, noting procurement risks. “I think that Canada’s industrial capacity may not be able to meet the need, which is a risk.… And we might ask, what are we getting back from all of these industrial and technological purchases? That’s another source of risk.”
Sources: CBC Politics · Global News Canada