Government says it will reach 1.76 per cent by 2030, but PBO estimates a gradual decline from a peak of 1.49 in 2025-2026
OTTAWA — On the eve of a major NATO summit, the federal budget watchdog says the government is overestimating defence spending and that Canada will be even further than expected from its 2 per cent military investment commitment by the end of the decade.
Whereas the government says that it will be spending $54.9 billion in NATO-eligible military expenditures by 2029-2030, the PBO estimates that number will more likely be $52.2 billion.
Giroux also found that the government is overshooting how much of its gross domestic product (GDP) it will be spending on NATO-eligible defence expenditures by 2029-2030.
While the government says it will reach 1.76 per cent by the end of the decade, the PBO estimated it would be 1.42 per cent after a gradual decline from a peak of 1.49 per cent in 2025-2026.
In a statement, Defence Minister Bill Blair’s director of communications Daniel Minden said the government “strongly disagrees” with Giroux’s projections and remains “confident” in its plans and projections.
The new PBO projections come on the eve of a major NATO summit in Washington, D.C., set to begin on Tuesday.
In 2014, Canada signed a commitment alongside its NATO allies that it would allocate the equivalent of two per cent of its gross domestic product to eligible military spending, including 20 per cent dedicated to purchasing new equipment.
In a defence policy update released earlier this year, the Liberals promised to boost military spending considerably. The document estimates that the Canadian military spending-to-GPD ratio will be at 1.37 per cent in 2024-2025 and jump to 1.76 per cent by 2029-2030.
Blair has said that respecting the 2 per cent commitment has been a “challenge” but repeatedly promised in recent speeches and interviews that it will eventually happen.
In an interview, Giroux said the policy update’s projections are “optimistic” and don’t consider lapsed budgets, meaning money that the department expects to spend but doesn’t for any number of reasons.
He said that since 2017-2018, the Department of National Defence has on average allowed 33 per cent of its capital expenditures to lapse. In the “best” year, the department only lapsed 25 per cent of that budget.
So, the PBO’s projections include a 25 per cent gap between the department’s planned and actual annual capital expenditures. He said he chose the lower number to reflect the government’s commitment to improve its defence spending and speed up military procurement.
“Case in point: recently, it was announced that the surface combatants will experience further delays,” Giroux said.
“If the minister is saying that they will improve their capacity to effectively spend, I have no reason to believe otherwise. But if history is any indication, I’m not very optimistic,” he added.
In a statement, Minden said the government is “working hard” to close the spending gap and pointed to a commitment to invest nearly $2 billion to hire more civilian procurement specialists as well as an internal review of purchasing practices.
“A larger civilian workforce will increase our capacity to purchase new equipment, increase our stocks of ammunition, and accelerate digital transformation,” he wrote.
“They will also fill critical gaps in functions that are essential to carrying out our operations today and into the future, such as staffing, security screening, and information technology — allowing us to get more money out the door, faster.”
Minden also questioned why Giroux based his spending ratio calculation on the PBO’s internal GDP forecasts instead of those by the Organisation for Economic Co-operation and Development (OECD). That’s what NATO uses when calculating member country’s military investment ratios.
The OECD’s current GDP projections for Canada are lower than those of the PBO’s, which pushes up the military spending-to-GDP ratio.
Giroux responded that GPD projections by Canadian-based sources like his office, the Bank of Canada and the Department of Finance are generally more accurate and that he expects the OECD will eventually update its numbers and close that gap.
The OECD “consult with us, they consult with the bank, they consult with the Department of Finance. That’s why I’m saying I wouldn’t be surprised if the OECD revised its own Canadian outlook for GDP upwards in the not-too-distant future,” Giroux said.
Canada’s NATO allies are reportedly increasingly frustrated with the country’s lack of a clear timeline to hit the two per cent mark.
In May, a bipartisan group of 23 U.S. senators including Mitt Romney, Ted Cruz and Joe Manchin wrote a letter to Prime Minister Justin Trudeau calling on him to up its military spending and respect its NATO commitments.
They said they were “concerned and profoundly disappointed” in the government’s current spending projections, which are higher still than the PBO’s.
“Canada will fail to meet its obligations to the Alliance, to the detriment of all NATO Allies and the free world, without immediate and meaningful action to increase defense spending,” reads the letter.
National Post
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