Getting Canadian defence spending to 2% of GDP

What could Canada do to boost defence spending quickly?

How could Canada increase defence spending to two percent of its Gross Domestic Product (GDP) in relatively short order? This question has come back to the fore in light of Donald Trump’s threat not to defend allies who fail to meet the 2% NATO target, NATO’s Secretary General telling CTV’s Vassy Kapelos that he wants a timeline for when Canada will meet this target, and Conservative leader Pierre Poilievre stating that he would work toward the 2% commitment if he forms government.

Right now, Canada spends about 1.3-1.4% of GDP on national defence, which NATO accounting translated to a yearly defence expenditure of $39 billion for 2023. Canada’s main estimates, on the other hand, have the defence budget at about $26 billion. Using Canada’s figure, to get defence spending up to 2% would require about $18-20 billion more annually. Since the Canadian Armed Forces (CAF) are having trouble recruiting and retaining enough people, increasing the size of the military won’t get us there in the short term. Likewise, the Department of National Defence (DND) has its hands full with the current recapitalization of the CAF. Initiating a bunch of additional capability procurements on top of existing ones may not work in the short-term either. So, what could we do in the coming years to bump up our spending and what would trade-offs be involved? (There are always trade-offs, people.)

Increase pay for CAF members: We may not be able to recruit and retain enough people to grow the military, but we could markedly increase the amount that we pay CAF members. We’d need to be smart about how we do this, of course, but higher salaries would increase the personnel side of the defence budget. Equally important, if we significantly increased salaries, it might help the CAF recruit and retain over the long-term. Other employers might not be happy if the CAF became more competitive on the salary front, the wider public service might get resentful, and financial hawks could see this as contributing to inflationary salary expectations, but large pay increases could help inject a few billion into the military fast.

Major investments in defence infrastructure: When we talk about the capital side of the defence budget, we tend to speak about capabilities and platforms. But the capital budget also includes infrastructure spending. And that portion of the capital budget needs a lot of love. Whether it’s refurbishing dilapidated Canadian Forces Bases and military housing, doing environmental clean ups at defunct sites, or constructing new installations, there are tons of things that have to be done to improve defence infrastructure and not enough money to do them. We could address this lacuna by launching a major defence infrastructure investment initiative, which would not only grow the defence budget, but increase the portion of defence spending devoted to capital, a figure that NATO also cares a lot about. The challenge, however, is that investing in defence infrastructure would draw scarce workers and materials away from new housing, which is arguably the country’s biggest priority at the moment.

Top up ongoing procurement projects: While DND may not be able to absorb a slew of new procurement projects, it could probably funnel new money at several existing ones. The additional funds could be used to buy larger fleets, ‘nice to have’ but not mandatory technologies, and other low hanging fruit associated with projects that are already underway or contracts that allow for extras to be added. The downside here is that there are likely a long list of new projects that could be initiated instead of spending more on existing ones.

An accelerated submarine purchase: Submarines are the next big capability that needs to be acquired. In recent years, decisions have been made about buying new naval surface combatants, fighter aircraft, maritime patrol aircraft, drones, transport and refuelling planes, light trucks, and Land C4ISR. There are also a lot of other acquisitions on the way, in line with the initiatives found in the government’s 2017 defence policy Strong, Secure, Engaged. On top that, Canada is modernizing NORAD alongside the United States. A plan to replace Canada’s four ageing Victoria-class submarines, however, hasn’t been announced. If standard procurement timelines are followed, it’ll take more than a decade to get new submarines. So, a new submarine purchase doesn’t look like a viable way to increase defence spending in the short-term.

The government could announce an accelerated submarine acquisition, though. To ensure that the new submarines would significantly boost the defence budget, you’d probably want to acquire a good number of them. And if we really want to go well above 2% of GDP, Canada could also go for nuclear propulsion (yeah, yeah, I know.) But even diesel-electric or air independent propulsion submarines are going to be quite costly to buy, operate, maintain, and base. Getting them soon would involve a strict set of criteria: a submarine that’s already in production and in service, a production line that could get them built fast, and a reverse requirements evaluation process, i.e. instead of having the navy set the requirements, then selecting a submarine that best meets them, have manufacturers present their submarine’s capabilities and let procurement officials and naval officers select the one that best aligns with the CAF’s concept of operations. This approach would involve several trade-offs. Canada might not get a submarine with cutting edge technology. The submarine might not do everything the CAF would want it to do. And insisting on a submarine that’s in service and in production would exclude potential bidders. But an accelerated approach could get the CAF a new fleet of submarines fast, while increasing both the defence capital and operations and maintenance budgets.

An accelerated defence digitization effort: Defence digitization has been recognized as a critical effort for the future CAF. Moving the military into the digital age is not only necessary to maintain an advantage over adversaries, but to change how the CAF attracts and keeps people, handles and processes data, and absorbs new technologies. As the CAF’s Digital Campaign Plan stresses, defence digitization needs to happen by 2030. To get there in time, DND/CAF will probably require a private sector partner. That’s where an accelerated approach could come in. One of the Big Tech firms, or a consortium of them, could be selected to help DND/CAF make digitization happen as quickly as possible. Of course, in light of ArriveCan, ministers may not be willing to accept any risks on big IT projects, but defence digitization needs to happen.

Cost out long-term sustainment and upgrades: Given how many new capabilities Canada has and is acquiring, the government could start calculating conservatively what it will cost to sustain and upgrade these systems over their operational lives. As Alan Williams has warned, the government has likely underestimated the cost to sustain and upgrade fifteen Canadian Surface Combatants and eighty-eight F-35 fighter aircraft. If Williams is correct, the same is probably true of other recently contracted fleets. Once the full costs of all the incoming fleets are taken into account, Canada may be headed for a defence budget above 2% in coming decades. This reality won’t get Canada to 2% soon, but it would at least present a path toward the target.

All told, there are lots of ways to get the Canadian defence budget to 2% of GDP, assuming the government is ready and willing to take some bold steps.