Canada Outlines Plan to Increase Defense Spending and Conduct a New Defense Policy Review

Prone soldier firing a machine gun in the brush

Members of 5 Combat Engineer Regiment take part in a C6 machine gun firing exercise during Exercise SAPEUR RAPIDE 2 on August 18, 2021. – Corporal Noé Marchon, Valcartier Imaging Service, Canadian Armed Forces

Canada can be added to the growing list of countries that have pledged to increase defense spending in the wake of Russia’s invasion of Ukraine. Ottawa released a 2022 budget Thursday that calls for bolstering the defense budget by around CAD8.2 billion ($6.5 billion) over the span of five years. By itself, the additional funding would provide only marginal growth of around 1.7 percent over 2021 spending levels, compared to average annual growth of 2.6 percent over the past decade. However, the increase is intended to be on top of the 2017 “Strong, Secure, Engaged” defense policy that already called for increasing the military budget from around CAD18.6 billion in 2016 to CAD32.7 billion by 2026

The 2022 budget indicates that CAD6.1 billion will be set aside for improving domestic defense capabilities, meeting commitments to allies, and investing in equipment and technology, but budget documents are short on specifics. The budget does discuss the need for modernization of the North American Aerospace Defense Command (NORAD), and reports that options are being considered for making improvements in areas like all-domain surveillance and intelligence, command and control, deterring and defeating threats, and research and development. Another $875 million addresses cybersecurity threats over five years, and $18 million is allocated to fund academic research on cutting-edge cybersecurity technologies.

The budget also includes CAD500 million in new funding in 2022 to aid Ukraine. Ottawa says it has now announced a total of more than CAD1.2 billion in direct lethal and non-lethal aid to Ukraine, including the new measures outlined in the 2022 budget. Ottawa has also imposed sanctions against Russia and reduced the trade status of Russia and Belarus.

table showing Canadian defense spending figures

A portion of the planned defense spending increases as shown in Budget 2022 (amounts are CAD millions). – Government of Canada

While Canada’s effort to bolster its military budget is a welcome sign for the defense community and NATO allies, there are a few catches. For one, a CAD8 billion increase over five years only brings Ottawa marginally closer to the NATO target of spending 2 percent of GDP on defense. NATO itself estimates that Canada spends around 1.39 percent of GDP on defense, and the 2022 spending plan could bring that figure up to 1.5 percent of GDP, according to government officials.

Much of the new spending in the 2022 budget is also back-loaded, and there are no guarantees the money will materialize. Out of the CAD6.1 billion set aside for improving military capabilities over the next five years, only CAD100 million is intended to be spent in 2022. The remaining funding is broken out as follows: CAD1 billion in 2023, CAD1.5 billion in 2024, CAD1.6 billion in 2025, and CAD1.9 billion in 2026.

Canada’s Strong, Secure, Engaged defense policy was similarly back-loaded when it was first released in 2017. At the time, increasing the defense budget to CAD32.7 billion by 2026 would require average annual growth of nearly 6 percent over an entire decade, but most of the growth wasn’t expected until after 2020. The past two budgets have made some headway in addressing slow initial growth. The Department of Defence’s 2021 Departmental Plan outlined CAD2.9 billion more for defense between 2020 and 2022 than was anticipated under the previous year’s plan. However, that document projected defense spending would actually decline to CAD23.8 billion in 2023. That drop would have put the military on track for compound annual growth of just 3.6 percent between 2016 and 2023, well behind the level needed to meet the defense policy spending goals. However, the latest 2022 Departmental Plan now shows estimated spending of CAD25.9 billion in 2023, which would result in compound annual growth of around 4.8 percent since 2016, which is an improvement, but still behind the pace. The 2022 Departmental Plan also shows spending dropping  in 2024 (to CAD25 billion), but these projections are not set in stone.

A chart showing Canadian defense spending figures

Defense spending projections pulled from Chapter 5 of Budget 2022. – Government of Canada

The additional funding outlined in the 2017 defense policy wasn’t to be used for new major acquisition programs or capabilities. Rather, the spending increase was intended to bring the defense budget closer to where it needed to be to pay for underfunded programs and requirements that were already on the books or in the planning stages. Will the CAD8.2 billion in new spending outlined in the 2022 budget be used to procure new capabilities and bolster fleets, or will it go to covering cost overruns for massive programs like the Navy’s new frigate or the Air Force’s future fleet of F-35s? Or will the money simply waste away due to delayed acquisition programs? It’s too soon to answer those questions.

The 2022 budget also announced a new defense policy review, which will likely dictate how much of the new planned funding will be spent. It’s possible the policy review will also call for even larger defense outlays than those promised in the 2022 budget. Russia’s invasion of Ukraine will impact the defense policy review in at least two big ways. First, the war in Europe has renewed the conversation about NATO defense spending and capabilities, potentially putting increased pressure on Ottawa to invest more heavily in its own military. Second, the policy review will likely address the possible increased threat of Russian activity in the Arctic, an area of significant strategic importance to Canada. Officials said the review will be broad in scope and will also examine other potential threats, such as China’s military expansion. Officials did not say when the review will be completed. For now, Canada’s focus will be on implementing growth targets under its Strong, Secure, Engaged policy and following through on its pledge to further increase spending as presented in the 2022 budget.

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About Shaun McDougall

Shaun McDougall is an analyst at Forecast International covering the U.S. and Canadian defense markets.

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