Defence spending expected to drop $400M — despite Liberal pledge to keep up with Tories: sources

By: Murray Brewster, National Post 

OTTAWA — The upcoming federal budget is not expected to commit to a broad increase in military spending, say several defence sources.

In fact, newly tabled fiscal planning documents suggest overall spending on the military could shrink by almost $400 million in the coming year.

During the election campaign, Prime Minister Justin Trudeau promised to maintain the former Conservative government’s defence spending levels and increase funding in 2017, as laid out in last year’s federal budget.

His government has been under pressure from allies to hike what it spends on defence, with both the United States and Britain asking Canada to aim for the NATO spending benchmark of two per cent of GDP.

Rick Bowmer / Associated Press An F-35 jet sits on the tarmac at an operational base

The demands have become particularly strident in the aftermath of the Paris terrorist attacks last November, which killed 130 people.

Preliminary budget estimates for the coming year show the military is expected to end the year with a budget of just over $19 billion, but planned spending for fiscal 2016-17 amounts to $18.64 billion.

National Defence does routinely goes back and top up its budget later in the year, but the amounts vary depending on what is going in the world.

Defence Minister Harjit Sajjan has denied there are spending cuts in the works, citing a Liberal promise to stick with planned annual increases through a budgetary mechanism known as the defence escalator.

The Conservatives used to use a similar line, insisting the military was getting its annual operating increase, only to cut spending elsewhere.

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Documents obtained by The Canadian Press under the Access to Information Act show those annual two per cent increases don’t keep up with inflation and have been more than offset by the previous Harper government’s earlier deficit spending cuts.

Under the previous government, the operating budget would increase by roughly $300 million per year, but all told some $2.1 billion ended up coming back into government coffers.

The escalator was introduced by the Conservatives as a way to provide stable and predictable funding to the military, but analysis has shown that inflation in the defence industry runs higher than in the broader economy.

A lot of that is driven by so-called “technological inflation” on high-tech military hardware, which the U.S.-based think-tank Rand Corporation estimates to range from two to five per cent annually.

National Defence is also forced to buy from a limited number of suppliers, which charge a premium.

Sean Kilpatrick / Canadian PressPrime Minister Justin Trudeau, Defence Harjit Sajjan, and Minister of International Development and La Francophonie Marie-Claude Bibeau during a press conference on Monday, Feb. 8, 2016

“The two per cent defence escalator appears to be more or less adequate to compensate for strict economic inflation factors; however, it is not adequate to compensate for other non-economic driven cost inflation factors,” said a memo written for the deputy defence minister on Nov. 12, 2014.

“The two per cent defence escalator does not provide the funding stability that will allow for the successful implementation of the (Canada First Defence Strategy) without access to the accrual envelope for additional funds to offset on-going non-economic cost pressures on the DND budget.”

Conservative defence critic James Bezan says at a minimum, the Liberals should honour the promise to maintain the planned escalator increases.

With all of the deficit spending going on in other departments, Bezan admits he’s getting nervous.

“Now that we’re talking a $30-billion deficit, there’s going to be increased pressure on National Defence is pare back their own funding requirements and that is something I’m going to be watching very closely.”