Defence Spending

Spending Reductions and Lapsed Funding

• As one of the largest federal departments, National Defence is committed to working more efficiently, and ensuring that our dollars are concentrated on achieving our top priorities.
• That is why National Defence reduced spending on professional services and travel by $211 million during the last fiscal year.
• In parallel with these targeted spending reductions, we continue to invest in military capabilities to ensure Canada can continue to contribute meaningfully to global peace and stability.
• This includes funding for major capital projects such as the River-Class Destroyer and the Canadian Multi-Mission Aircraft.
• In addition, during the latest NATO Summit in Washington, the minister announced that Canada expects to spend 2% of its gross domestic product on defence by 2032.
• While we continue to maintain our fiscal responsibility toward Canadians, we remain steadfast in our efforts to defend their safety and security, at home and abroad.

If pressed on lapsed funding:

• National Defence manages a large budget with major equipment and construction initiatives that need funding over many years.
• As such, Defence uses a flexible funding model to ensure that projects get the money they need when they need it.
• This means that money can be re-allocated to support priority projects and initiatives within a given year or moved forward to support needs in future years.
• For example, last fiscal year, we reprofiled $1.1 billion to future years for several capital equipment and infrastructure projects.
• We will continue to direct committed funding when needed, to support our people, deliver on operations, and undertake major equipment and construction initiatives.

Background

Spending Reductions

• Efforts are underway to reduce National Defence's spending to meet targeted reductions of approximately $900M per year. Reductions will be phased in over three years and are not expected to result in job losses outside of normal attrition, or reallocation, ensuring that National Defence's work is focused on high-priority initiatives.
• Additional spending reduction targets are planned for 2024-25 and ongoing, as outlined in the Departmental Plan:

Savings measure 1: Travel

• Reduce spending on travel by $58.6M in 2024-25, and ongoing.
• The Department is focusing on discretionary travel – for example, travel related to governance and planning that can be done in another format.
• Travel reductions will not affect deployments of CAF personnel.

Savings measure 2: Professional Services

• Reduce spending on professional services by $200M in 2024-25, and ongoing.
• Our focus on reducing spending in this area is on those services that can be reduced or eliminated while minimizing the impact on CAF readiness and operations.
• DND/CAF spends about $5 billion annually on contracted services. About half of that amount is in direct support of equipment and fleet maintenance and sustainment, such as engineering services.

Savings measure 3: General Operating Funds

• Reduce general operating expenses by $354.8M in 2024-25, $264.3M in 2025-26, and ongoing.
• The Department has completed the initial phase of this exercise, which has identified several areas for savings and potential long-term efficiencies across the organization. This includes activities that have historically lapsed funding.

Savings Measure 4: Fiscal Framework^{Footnote 1}

• Reduce spending to initiatives yet to be started and not yet funded in the fiscal framework by $197.1M in 2024-25, $185.8M in 2025-26, $79.9M in 2026-27, and ongoing.
• Reductions will be applied to programs where a Treasury Board Submission has yet to be approved and where there is an opportunity to harvest some savings by revising the schedule.

Savings Measure 5: Additional Targeted Spending Reductions

• The previously described measures do not fully meet targeted saving reductions. Further work is therefore currently underway to identify $142.7M in 2025-26 and $304.8M in 2026-27 (ongoing) to fulfill Department of National Defence targets.
• We will continue to ensure that the spending in our budget is directed toward top government and defence priorities, which include increasing military capabilities and supporting our people and their families.

Lapsed Funding

• National Defence introduced a flexible funding model in 2017 to re-allocate lapsed funds to support emerging priorities or future needs.
• To mitigate lapses in funding authorized by Parliament, National Defence is taking the following actions:
  • Improving its capital funding forecast to ensure that the Department does not request more funding authorities from Parliament than required;
  • Funding new projects from surplus in-year funding rather than requesting additional funding from Parliament;
  • Requesting funding for additional military deployments later in the process to ensure only the required funding authorities are requested (to prevent operating lapse); and
  • Monitoring forecasted exchange rates to better forecast their impact on funding estimates (to mitigate grants and contributions lapse).

Responsible Principal: Assistant Deputy Minister (Finance)

August 22, 2024

NATO Funding

• Canada is unwavering in its commitment to the NATO Alliance, to the defence of Euro-Atlantic security, and to global security, prosperity, and the rule of law.
• As we announced at the NATO Summit in Washington this summer, Canada is committed to spending 2% of its GDP on defence by 2032.
• This represents a credible, responsible, and achievable target date, which will allow Canada to ramp up its spending and procurement capacity on a realistic timeline.
• Our defence policy, Our North, Strong and Free, outlines $8.1 billion in new defence spending over the next 5 years, starting in 2024-25, and $73 billion over the next 20 years.
• Further, our investments put Canada on track to exceed NATO's target of 20% for major equipment expenditures as a proportion of defence spending starting in fiscal year 2025-2026.
• We will continue to make significant but necessary investments to protect Canadians, defend our North, and support our Allies.

If pressed on specific NATO contributions:

• Canada's contributions to NATO are recognized by our Allies as a significant part of the Alliance's contributions to peace and security in Europe and beyond.
• Beyond the operational contributions we continue to make to NATO missions, we are supporting our Allies by investing in modern capabilities.
• Just last year, we announced the procurement of a fleet of 88 F-35 fighter jets, up to 16 P8A Poseidon patrol aircraft, 9 Multi-Role Tanker and Transport aircraft, and 11 MQ-9B remotely piloted aircraft.
• In addition, we are urgently acquiring anti-aircraft, anti-drone systems, as well as modern anti-tank weapons to reinforce our troops in Latvia.
• Through Our North, Strong and Free we are investing heavily to acquire further capabilities over the years to come.
• In making these investments, we always place a high priority on interoperability with our Allies to deliver high-end effects in support of our collective defence.

If pressed on the Parliamentary Budget Officer's post on NATO spending:

• National Defence appreciates the work of the Parliamentary Budget Officer.
• Given our different mandates, differences between how National Defence and the PBO approach defence spending are to be expected.
• While the PBO has developed its own methodology to calculate GDP, National Defence uses data provided by NATO.
• All NATO members must use the GDP data and benchmarks from NATO to ensure consistency amongst members.

Background

NATO Centre of Excellence on Climate and Security (CCASCOE)

• At the June 2021 NATO Summit, the Prime Minister announced Canada's proposal to establish and host a CCASCOE as its Framework Nation. In June 2022, Canada announced that Montréal will be the host city for the NATO CCASCOE.
• This Centre of Excellence will be a platform for both military and civilians to develop, enhance, and share knowledge on climate change security impacts. It will also allow them to work together to build required capabilities, develop best practices, and contribute to NATO's goal of reducing the climate impact of military activities.
• Budget 2023 proposed to provide $40.4 million over five years, with $0.3 million in remaining amortization and $7 million ongoing, to Global Affairs Canada and the Department of National Defence to establish the NATO CCASCOE.
• At the July 2023 NATO Summit in Vilnius, Canada and eleven Allies signed the CCASCOE's Operational Memorandum of Understanding (MOU) to become the Centre's founding Sponsoring Nations.
  • The twelve founding Sponsoring Nations of the CCASCOE are: Canada, Denmark, France, Germany, Greece, Italy, Latvia, Luxembourg, Norway, Romania, Türkiye, and the United Kingdom.
• CCASCOE reached initial operating capacity in the late fall of 2023.

NATO Common Funding Contributions

• Canada's share of NATO's common funding is now approximately 6.68% (~90% from National Defence and ~10% from Global Affairs Canada).
• In fiscal year 2024-25, National Defence's contribution to NATO's military budget will be $327.8M. This contribution will support:
  • International Military Staff and NATO's Command Structure;
  • NATO's key air fleets: NATO Airborne Warning and Control System (AWACS), and Allied Ground Surveillance (AGS); and
  • NATO operations and missions, such as the Kosovo Force (KFOR) and NATO Mission Iraq (NMI).
• In fiscal year 2024-25, National Defence's contribution to the NATO Security Investment Program will be $127.1M. This will support capital costs for IT systems and assets, such as airfields and fuel storage.
• In fiscal year 2024-25, National Defence's contribution to other NATO activities will be $5M. This will support:
  • NATO Centres of Excellence;
  • NATO Naval Forces Sensor and Weapons Accuracy Check Sites;
  • NATO Rapidly Deployable Corps Headquarters; and
  • NATO Production and Logistics Organizations (NPLOs).

Defence Innovation Accelerator for the North Atlantic (DIANA)

• At the NATO Summit in Madrid, in June 2022, the Prime Minister announced Canada's intention to host the North American Regional Office of NATO's Defence Innovation Accelerator for the North Atlantic (DIANA). The proposed location of the Regional Office, in the Halifax area, was announced in November 2022.
• DIANA aims to facilitate cooperation between civilian innovators, government scientists, and military operators to accelerate, test, and evaluate early-stage technologies, while also protecting technological solutions against threat activity.
• DIANA will concentrate on new emerging and disruptive technologies that NATO has identified as priorities including artificial intelligence, big-data processing, quantum-enabled technologies, autonomy, biotechnology, novel materials, and space.
• Budget 2022 allocated $30.1 million over four years, and $10.4 million ongoing to establish the new North American regional office in Halifax for DIANA.
• In November 2023, the Minister announced that Canada is contributing an initial investment of $26.6 million over six years in support of establishing the North American Regional office for DIANA in Halifax.

Budget 2024

• Budget 2024 provided foundational investments of $8.1 billion over five years, starting in 2024-25, and $73 billion over 20 years to the Department of National Defence (DND), the Communications Security Establishment (CSE), and Global Affairs Canada (GAC) to ensure Canada is ready to respond to global threats and to protect the well-being of Canadian Armed Forces members. These investments will be made along six major themes to:
  • support our people;
  • strengthen our foundations;
  • build an innovative industrial base;
  • defend Canada;
  • defend North America; and
  • defend Canada's global interests and values.

Responsible Principals: Assistant Deputy Minister (Finance), Assistant Deputy Minister (Policy)

August 29, 2024