Spending

Spending Reductions and Lapsed Funding

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Details

National Defence Spending

• Our North, Strong and Free committed to invest $8.1 billion over the next 5 years and $73 billion over the next 20 years in national defence.
• With these funding commitments and including National Defence's contribution to Refocused Government Spending, National Defence spending is on track to more than double in fiscal year 2025-26 compared to fiscal year 2016-17, when Strong Secure Engaged was released.
• At the North Atlantic Treaty Organization (NATO) Summit in Washington D.C. in July 2024, the government announced its commitment to continue increasing Canada's defence spending in order to reach 2% of Canada's gross domestic product (GDP) by 2032. (see NATO Funding)

National Defence Contribution to Refocusing Government Spending

• In the first year of the Refocusing Government Spending initiative, National Defence reduced spending on professional services and travel by $211 million during fiscal year 2023-24.
• Ongoing efforts are underway to reduce National Defence's spending to meet targeted reductions of approximately $900 million 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 $58.6 million in 2024-25, and ongoing.
• National Defence 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 Canadian Armed Forces (CAF) personnel.

Savings measure 2: Professional Services

• Reduce spending on professional services by $200 million 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.
• National Defence 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 $354.8 million in 2024-25, $264.3 million in 2025-26, and ongoing.
• National Defence 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 $197.1 million in 2024-25, $185.8 million in 2025-26, $79.9 million 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 $142.7 million in 2025-26 and $304.8 million 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. (see CIF Initiatives)
• 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).

NATO Funding

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Parliamentary Budget Officer (PBO) Report

• PBO published a report on October 30, 2024, entitled The Fiscal Implications of Meeting the NATO Military Spending Target in follow-up to its update in July 2024.
  • The report states that additional spending will be required to meet our NATO 2% commitment but concludes that such expenditures are possible without unduly impacting Canada's deficit-to-GDP ratio.
  • It reiterates a position that the PBO took in the summer, that Our North, Strong and Free (ONSAF) underestimates GDP and that, as a result, Canada's defence budget would have to rise to $81.9 billion by 2032-33 to meet the NATO 2% target. This would represent a significant increase from the $57.8 billion projected for 2029-30 in ONSAF.
  • The PBO labels the ONSAF GDP forecast as "erroneous" as it assumes a nominal GDP growth rate of 1.7%, which "does not even keep pace with inflation and therefore assumes a 4-year economic recession, almost twice the length of the country's longest recession in the last 40 years".
  • Using PBO's GDP forecast, Canada's projected defence spending-to-GDP ratio changes to 1.58% by 2029-30 (compared to the ONSAF projection of 1.76%).
  • The PBO relies on its own methodology for calculating GDP, which it says is broadly similar to the Department of Finance. National Defence uses Canadian GDP figures provided by NATO, which are based on the methodology applied by the Organization for Economic Co-operation and Development (OECD), a standard practice for NATO allies.