On June 7, 2017, the federal government unveiled its new defence policy, outlining its plan to increase the annual defence budget by 73 per cent over the next decade, from C$18.9-billion in 2016–17 to C$32.7-billion by 2026–27. With C$62.3-billion in additional military spending allocated over the next 20 years, the policy aims to assist the Canadian Forces across the full spectrum of military operations, from humanitarian assistance and disaster relief, to peacekeeping and combat, and would result in a forecasted C$553-billion in total defence spending over 20 years. This spending increase presents significant long-term opportunities for defence contractors, manufacturers and suppliers, both at home and abroad.

POLICY OVERVIEW

In what the government calls “the largest defence modernization effort in decades”, the policy contains a comprehensive plan to invest in key emerging domains while simultaneously recapitalizing the core capabilities of the Royal Canadian Navy, the Canadian Army and Royal Canadian Air Force. While a full 20-year breakdown of the existing budget and new funding under the policy has not yet been made available, the government has indicated certain areas of focus.

Investments in the Navy include:

  • Recapitalizing the surface fleet through investments in the 15 Canadian surface combatants military vessels and two joint support ships
  • Acquiring five to six Arctic offshore patrol ships
  • Operating and modernizing the four Victoria-class submarines
  • Acquiring new or enhanced naval intelligence, surveillance and reconnaissance systems and upgraded armament

Investments in the Army include:

  • Acquiring ground-based air defence systems and associated munitions
  • Replacing the family of armoured combat support vehicles, including command vehicles, ambulances and mobile repair teams
  • Upgrading the light armoured vehicle fleet
  • Modernizing logistics vehicles, heavy engineer equipment and light utility vehicles
  • Investing in modernized communications, shelters, power generation, advanced water purification systems and equipment for austere environments
  • Acquiring all-terrain vehicles, snowmobiles and larger tracked semi-amphibious utility vehicles optimized for use in the Arctic environment

Investments in the Air Force include:

  • Purchasing a fleet of 88 advanced fighter aircraft
  • Acquiring space capabilities meant to improve situational awareness and targeting, including replacement of the current RADARSAT system, surveillance of Canadian allied space-based systems and global space-based systems
  • Recapitalizing next generation strategic air-to-air tanker-transport capability
  • Acquiring next generation multi-mission aircraft
  • Operationalizing the newly acquired fixed-wing search and rescue aircraft fleet

SPECIFIC INVESTMENTS

Among the core investments promised by the policy are pledges to purchase new fighter aircraft and ships. Ottawa will hold an open competition to buy the 88 advanced fighters to replace its fleet of 77 CF-18 planes, at an estimated cost of C$15–19 billion (up from previously announced plans for 65 fighter jets). The policy also confirmed the government’s long-standing plans to buy 15 new surface combatant vessels for the Navy, which the Liberal government said could cost roughly C$56–60 billion — far higher than the previous Conservative government’s forecast of C$26.2-billion.

In addition to its pledged spending on military equipment, the policy aims to grow the size of the Canadian Forces itself. The proposal increases military ranks by 3,500 regular force (to 71,500 total) and 1,500 reserve force members (to 30,000 total), while the Department of National Defence will hire an additional 1,150 defence civilians to support military operations in areas such as intelligence and procurement.

WORKING WITH INDUSTRY

The policy articulates a new approach to defence research and development. The government will invest C$1.6-billion over the next 20 years to implement a new Innovation and Defence Excellence and Security program (IDEaS), which will include the establishment of research “clusters” to stimulate collaboration and the exchange of ideas, bringing together academics, industry and other partners. The policy highlights key areas for advanced research within the research clusters, including cyber tools for defence, space, alternative fuels and remotely piloted systems. The policy also indicates that IDEaS will introduce new procurement tools to allow the Canadian government to commit early in the development process to promising ideas.

The policy also highlights other proposed improvements within the defence procurement process, including:

  • The reduction of project development and approval times for low-risk and low-complexity projects (to be achieved through improved internal coordination, increased delegation and strengthened approval processes)
  • Increasing the Department of National Defence’s contracting authorities for goods up to C$5-million by 2018
  • Increasing the transparency and timeliness of communication with the defence industry
  • Expanding the defence procurement workforce

FUNDING REFORMS

The policy proposes a number of reforms to the management of the defence budget, which are meant to provide flexibility in managing key investments in defence spending. These reforms include:

  • Amendments to defence funding that promote clarity and transparency in investments, to be divided between asset acquisition (capital budgeting) and operational expenditures needed to run the department (operational budgeting)
  • Amendments to the federal procurement model to include more thorough cost-modelling, to ensure that funding is available for both procurement as well as ongoing maintenance and operation throughout the life cycle of key equipment
  • Implementation of more thorough costing on major equipment acquisition, including third-party reviews

The policy does not discuss these reforms in great detail, but does propose that there will be another defence investment plan published in 2018 (with a commitment to publish updated plans every three years) that will provide clarity and transparency to Canadians with respect to the defence budget. This 2018 plan, along with the federal government’s 2018 federal budget, is expected to provide greater detail on the sources and uses of this additional defence funding in both the short and long term.

POLICY AIMS

The policy further signals the federal government’s desire to demonstrate to the United States and its other NATO allies that Canada is making a bigger commitment to defence expenditures. In 2014, NATO members agreed to work towards a defence spending target of two per cent of GDP. Only five countries have reached that goal and Canada is not one of them; it currently spends about one per cent of GDP on defence, ranking it in the bottom half of allies. The new policy will increase Canada’s defence spending from roughly one per cent of GDP to 1.4 per cent of its annual economic output by 2024–25.

Ultimately, the policy goes beyond capital expenditures, with proposed changes including a comprehensive approach to health and wellness while in uniform, a family support program and ongoing support during the transition back to civilian life. The policy also contains efforts to improve diversity and gender balance in Canada and places added attention on improving recruitment, retention and training to capitalize on the talents and skillsets of Canada’s highly diverse population.