Cost of Liberal government's defence plan has jumped by $50B, PBO says

The cost of the Liberal gov‐ ernment's nearly sevenyear-old marquee defence plan has jumped by over $50 billion - mostly due to anticipated work on mod‐ ernizing continental de‐ fence and delays in projects that should be un‐ derway - the federal budget watchdog said

Wednesday.

The Office of the Parlia‐ mentary Budget Officer re‐ leased an update to its pro‐ jections for the impact of Strong, Secure and Engaged, the 2017 defence policy doc‐ ument.

The new assessment shows the projected cost of purchasing new equipment under the plan over a 20year period has increased to $214.8 billion, up from the PBO's previous assessment of $164 billion.

When the federal govern‐ ment initially laid out its plan, it did not include the pro‐ jected cost of modernizing NORAD. In 2023, then-De‐ fence Minister Anita Anand announced that Canada would invest over $38 billion in improving aerospace and maritime defence alongside the United States.

Those figures are now folded into the PBO's esti‐ mate, along with $12 billion attributed to the rising cost of new equipment - brought on in part by delays in acquir‐ ing new fighter jets, frigates and drones.

"The combined effect of the introduction of the new NORAD capital and the de‐ lays in reprofiling of certain pre-existing projects results in a high and sustained level of capital spending, with planned capital expenditures for each fiscal year after 2022-2023 reaching at least $10 billion annually," the PBO report said.

In its previous analysis in 2022, the budget officer pro‐ jected that the balance of equipment purchases was equally weighted over the 20year lifespan of the policy. Now, the PBO says, $62 bil‐ lion of the expenditures will land in the last 10 years of the policy's lifespan.

The report notes that since 2017, the government has not spent roughly $12 billion earmarked for equip‐ ment purchases - projects that are now pushed off into the future.

The substantial accelera‐ tion in capital spending "raises questions about the ability of the government to manage increased procure‐ ment activity," said the re‐ port.

It also raises concerns about whether the Canadian defence industry can ramp up production to meet the demand.

WATCH | Canada needs to spend more on the right things when it comes to de‐ fence, minister says

One aspect not addressed in the PBO report is the fact that the Liberal government is in the process of revising the defence policy in re‐ sponse to the Russian inva‐ sion of Ukraine.

The revised policy has not yet been released, even though it was ordered on an urgent basis two years ago to address heightened interna‐ tional tensions.

There have been calls

from some quarters to in‐ crease ammunition produc‐ tion and suggestions that that navy will need to replace its submarine fleet - projects not included in the cost of the original defence policy.

Dave Perry, president of the Canadian Global Affairs

Institute, said there are other significant concerns related to the economy and supply chain issues, and how they affect defence purchasing.

"The ongoing delays in im‐ plementing are exposing de‐ fence to major impacts from inflation, which I think is an under-recognized, serious problem for DND," said Perry, a leading military procure‐ ment expert whose organiza‐ tion has hosted conferences that are occasionally spon‐ sored by defence contrac‐ tors.

"I've been told defencespecific inflation numbers have been running some‐ where around 17 per cent, as opposed to the consumer price index which last month is running at 2.9 per cent. So project delays, which were al‐ ways a problem from an af‐ fordability standpoint, are now much more so."

Defence-specific inflation is calculated using inputs that are specific to the con‐ struction of military hard‐ ware.

Perry also said he wasn't surprised by the $50 billion increase in the overall cost projection. He said the mod‐ ernization of NORAD involves "real money" and the federal government "totally buried" the estimate by not including it the original policy state‐ ment.