Department of National Defence

Overview of the Defence budget

Context

• The Department of National Defence (DND) receives an appropriation from Parliament on an annual basis. The cash budget is approved initially through the Main Estimates and can be revised up to three times per year through the Supplementary Estimates.
• This cash appropriation is used to make payments for salaries, operating and maintenance costs, grants and contributions, the purchase of capital equipment, and the construction of real property infrastructure.
• DND's Main Estimates 2025-26 are $35.7B, comprised of various votes as well as statutory funding (mainly comprised of funding related to employee benefit plans totalling approximately $1.8B). The votes are:
  • Vote 1 – Operating ($21.5B);
  • Vote 5 – Capital ($10.9B);
  • Vote 10 – Grants and Contributions ($1.0B);
  • Vote 15 – Payments in respect of the long-term disability and life insurance plan for members of the Canadian Armed Forces (CAF) ($447M).
  • The largest portion of the budget is allocated to Operating (32%), Capital (30%), Personnel (30%).
• Funding sought in fiscal year 2024-25 through the Main Estimates process represented approximately 88.4% of the Department's budget with the remaining coming from the Supplementary Estimates, carry forward, and other adjustments. DND leverages the Supplementary Estimates process in order to access funding for CAF military operations and major capital projects as funding requirements are better defined by this point in the year. This also promotes effective financial management of departmental resources in minimizing lapses at year-end.
• The Capital Investment Fund (CIF) is a dedicated source of funds in the Fiscal Framework that establishes a funding ceiling, defined on an accrual basis, for the acquisition, construction or betterment of tangible capital assets by the Department. This accrual funding profile enables DND to align the cost of acquiring an asset with the time period over which they are used, which enables better long-term financial and investment planning in support of Canada's defence policy. The CIF provides $156.8B in accrual-based funding over a 20-year period (2024-25 to 2043-44), post Budget 2024, including capital project funding from original Strong, Secure, Engaged (SSE) and subsequent decisions (e.g. North American Aerospace Defense Command (NORAD) modernization), and will soon include funding approved for major funding updates, such as Our North Strong and Free (ONSAF).
• Capital investment cash that cannot be spent in a particular year is not lost. DND's CIF model facilitates the process of requesting a 'reprofile' of funds for major capital projects into future years.
• DND's approved projects from SSE,ONSAF,and NORAD modernization, all support Canada's commitment to the North Atlantic Treaty Organization to spend 2% of our Gross Domestic Product on defence expenditures. Canada has committed to meeting this requirement by 2032, by investing in the right mix of capabilities outlined in our defence policies and ensuring that the CAF has the right tools, training and personnel required.

Considerations

• Budget 2023 announced a reduction to organizations' operating budgets focused on travel and spending on professional services starting in 2023-24. The total reductions for DND are $907M a year and while a ten-year plan has been created to manage reductions in a manner that limits the impacts to operational readiness while targeting inefficiencies and low-priority items, extending the timeline of savings will put pressure on the Operating Budget Carry Forward while the plan is executed.

Overview of Canada's defence policy

Background

• In response to an increasingly unstable and volatile geopolitical landscape marked by Russia's illegal invasion of Ukraine and disruptive actions led by autocracies, National Defence released a defence policy update in April 2024 titled Our North, Strong and Free: A Renewed Vision for Canada's Defence (ONSAF). ONSAF provides an update to the 2017 defence policy, Strong, Secure, Engaged (SSE).
• ONSAF builds on commitments made through Canada's 2022 North American Aerospace Defense Command (NORAD) modernization efforts and the Indo-Pacific Strategy released in 2022. It aims to strengthen Canadian Armed Forces (CAF) foundations, including by boosting recruitment and retention, providing support to CAF members, as well as acquiring new capabilities to face and deter against current and emerging threats (see Annex for a summary of ONSAF investments).
• The defence policy also focuses on the convergence of multiple threats and trends reshaping the world. While adversarial autocracies are increasingly challenging the international order, new and disruptive technologies are rapidly redefining conflict and security. Meanwhile, Arctic warming is making Canada's Northern region more accessible to foreign actors who have growing capabilities and military ambitions.
• As a result, ONSAF prioritizes defending the North and asserting Canada's sovereignty in the Arctic. It also aims to deter and defend against adversaries, ███████████████████████, by leveraging Canada's allies and partners and strengthening contributions in the Euro-Atlantic and Indo-Pacific regions.

Considerations

• The current policy commits to increasing the readiness, resilience and relevance of the CAF. This includes boosting and modernizing recruitment, training, and retention efforts across the Defence Team, including civilians, sustaining and improving infrastructure, and acquiring and modernizing CAF capabilities to face current and emerging threats. New capabilities identified in ONSAF, such as underwater sensors, tactical helicopters, airborne early warning aircraft, and long-range missiles are key to ensuring the CAF will be able to operate across land, air, sea, cyber and space domains.
• ████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████^{Footnote 1} Although this contributes to raising Canada's defence spending as a share of its GDP, it falls short of meeting Canada's current commitment to meet the North Atlantic Treaty Organization (NATO) defence spending target of 2% of GDP by 2032. However, these investments put Canada on track to exceed NATO's target of 20% of defence spending for major equipment expenditures by 2025.
• Investments outlined in ONSAF build on investments under SSE and NORAD modernization. In 2017, SSE committed approximately $497 billion over a twenty-year horizon (accrual basis), including funding for new fleets for the Royal Canadian Navy, the Canadian Army, and the Royal Canadian Air Force. In 2022, this was followed by the allocation of $38.6 billion over twenty years (accrual basis) to modernize NORAD and enhance Canada's ability to defend North America and Canada's northern approaches. These investments include the acquisition of Arctic and Polar Over the Horizon Radars to increase domain awareness; new command and control capabilities; short-, medium- and long-range air-to-air missiles; infrastructure; and research and development. The updated Defence policy builds on these previous commitments by acquiring capabilities that will directly reinforce Canada's ability to deter, detect and defeat threats to the continent.
• To face the rapidly deteriorating threat environment, Canada's allies and partners are increasing their expenditure in defence. Since Russia's full-scale invasion of Ukraine in 2022, European Allies have increased their overall defence spending by 30% and 23 Allies were spending 2% or more of their GDP on defence in 2024. Other Canadian partners outside the Alliance, including Australia and Japan, have also significantly increased their yearly defence budget.
• ████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████████ Without additional spending in 2025, Canada would likely be the only major economy and one of the last Allies that has not reached the 2% target by 2025.
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Next steps

• Although ONSAF was published in April 2024, Canada is now at a critical juncture facing strategic decisions about investments in defence against the backdrop of disruption in the Canada-U.S. relationship.

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Annex: Summary of Investments in Our North, Strong and Free

1. Strengthen the Foundations of the CAF

• Investing $10.2 billion over 20 years in current and new infrastructure to support the required tempo of training, operations, and day-to-day military activities.
• $9.9 billion over 20 years to improve the sustainment of our naval fleets, including the extension of the Halifax-class frigate and the interim at-sea replenishment capability.
• $9.5 billion over 20 years to accelerate the establishment of new artillery ammunition production capacity in Canada and invest in a strategic supply of ammunition.
• $9.0 billion over 20 years to sustain military equipment under the National Procurement Program to ensure the CAF can continue to receive the critical updates necessary to preserve its ability deploy on operations.
• $1.8 billion over 20 years to increase the number of civilian specialists in priority areas to accelerate and improve the purchase of new equipment, recruit, and train new soldiers, and upgrade our infrastructure, among others.
• $497 million over 20 years to accelerate development of an electronic health record platform to improve the continuity of care as CAF members move between provinces and territories.
• $295 million over 20 years to establish a CAF housing strategy, build new housing and rehabilitate existing housing.
• $107 million over 20 years for Canada's participation in NATO Innovation Fund.
• $100 million over five years to improve childcare access for CAF personnel on bases across Canada.

2. Acquire New Capabilities to Deal with New Threats

• $18.4 billion over 20 years to acquire a more modern, mobile, and effective tactical helicopter capability.
• $5.5 billion over 20 years to acquire a comprehensive worldwide satellite communication capability.
• $2.8 billion over 20 years to stand up a joint Canadian cyber operations capability with the Communications Security Establishment.
• $2.7 billion over 20 years to acquire long-range missile capabilities for the army.
• $1.4 billion over 20 years to acquire specialized maritime sensors to conduct ocean surveillance.
• $307 million over 20 years for airborne early warning aircraft.
• $222 million over 20 years to build a new satellite ground station in the Arctic.
• $218 million over 20 years for Northern Operational Support Hubs. These will better ensure Canadian sovereignty by establishing a greater year-round presence across the Arctic and the North, and investing in multi-use infrastructure that also meets the needs of the territories, Indigenous peoples, and Northern communities.