A Canadian Forces pilot has his picture taken in front of a F-35 Strike Fighter prior to an announcement in Ottawa, on July 16, 2010. Canada's aerospace industry could lose about $10.5 billion worth of contracts over several decades if the federal government ultimately decides not to purchase the controversial F-35 Stealth Fighter, says a senior executive at Lockheed Martin. Adrian Wyld/Canadian Press
The Defence Department was effectively stripped today of more than $3 billion it had planned to spend on major new military purchases in the near future, in what amounts to the second major setback it’s faced in as many weeks.
In its latest budget, the Conservative government announced it will reclaim the $3.1 billion in cash it had planned to allocate to the military over the coming years but restore it four years hence, so the gear can be bought then.
“To ensure that funding for vital National Defence equipment is available for planned requirements, the government is shifting $3.1 billion of National Defence funding for major capital procurements to future years in which key purchases will be made,” the budget said.
The budget cut will have the effect of preventing the military from buying some gear for which it had lobbied long and hard to win approval.
A series of major procurement delays has prevented the military year after year from spending all the cash it’s been allocated
Finance Minister Jim Flaherty said the government plans to take that cash back until the military is sure it can spend it.
“We’re not reducing spending on the armed forces,” Flaherty told reporters. “There is no point in having money there to spend, if they can’t spend it, which they can’t.”
In 2008, the government announced a major new military investment plan called the Canada First Defence Strategy that detailed hundreds of billions of dollars in defence capital acquisitions.
It included new ships, helicopters, fighter jets, armoured vehicles and more.
But the military has had a hard time closing on the deals, despite the billions in allocated cash.
Sahir Khan, a senior fellow at the University of Ottawa, said Flaherty’s budget move reflects this military failure.
“It’s a result of the fact the government has had a challenge in procuring this equipment,” he said. “Then we’re back to the challenge of does the military have the equipment it needs to discharge its obligations.”
Khan suggested the failure to buy new gear was not just a military problem, but a government-wide problem that has led to a widening gulf between what it promised in its Canada First Defence Strategy and what it is actually able to deliver.
“The budget documents, as they often are, are very short on details, but they certainly invite a series of questions from parliamentarians and Canadians about what actually is going on with defence procurement strategy with the government,” Khan said.
Last week, the government announced a series of reforms to defence procurement that saw effective control and responsibility stripped from the military and handed to bureaucrats at the government’s contracting department, Public Works and Government Services Canada.
The move was viewed as a radical remake of defence procurement and the end of a years-long war — one that was lost by the military.
The list of slipped, stalled or failed procurements is lengthy and includes maritime helicopters to replace Canada’s 50-year-old Sea King helicopters, search and rescue planes, armoured vehicles, army trucks and even rifles for Canada’s Arctic and northern ranger force.
In the past, the military had received permission to “reprofile” cash it could not spend on certain purchases, and spend it on others.
In recent years the government has even allowed the military to keep as much as $1.5 billion in so-called “lapsed cash.”
The government is apparently no longer willing to allow the military to keep and “reprofile” cash allocated for procurements it’s unable to complete.
Liberals leader responds
Liberal Leader Justin Trudeau said the government has failed to properly manage the military or control the procurement system.
"What this government has demonstrated is a complete incompetence on the level of defence procurement and spending," Trudeau said. "What they are doing now is pushing off for four years getting the kind of equipment to our men and women in uniform that they need, delaying the kinds of jobs that often come through solid defence procurement."
The problem with lapsed or failed procurements is that they exert additional financial pressure on the military.
It frequently costs more to operate and maintain old and tired equipment then it does to operate new gear.
These costs will now arise as the military still struggles to implement a series of government budget cuts from previous years that have taken a dramatic toll on the military’s ability to spend.
“The budget has come down quite significantly,” said Dave Perry, defence economist at the Conference of Defence Associations Institute.
“The net impact on all of that on the current fiscal year is that there is roughly $4 billion less money for defence than the government said there would be when it issued the Canada First Defence Strategy.”
That calculation includes the $3.1 billion announced today, which is spread across four budget years.
It also includes roughly $1 billion per year in reductions attributable to a government spending review, another $1.12 billion per year under the Deficit Reduction Action Plan, and other lapsed or lost cash.
Perry said that means the military is now being hit on two fronts: the regular budget it uses to fund its operations and maintenance; and now also on procurement.
“I think right now the challenge is the plan,” Perry said. “Because the government doesn’t seem to have any kind of commitment to retain the funding” it had promised in the Canada First Defence Strategy.
“The government overall is cutting program spending across government, and if you want to keep on doing that you can’t keep spending what they wanted to on defence.”
And on that front, it appears the government has already begun a reckoning. Although the details are still hidden, the government is currently conducting a so-called reset of that Canada First Defence Strategy.
It’s not clear when that review will be complete.