Defence spending risks being undercut by inflation: report

OTTAWA — The parliamentary budget officer says the Defence Department is planning unprecedented capital spending in the coming years, raising concerns about the effect of inflation.

In a new report, Yves Giroux assessed 20 years of planned capital spending under Canada’s 2017 defence policy, billed “Strong, Secure, Engaged.”

He found planned spending is $50.8 billion more than it was two years ago, mostly because of Norad modernization and new procurements. Capital spending is set to be at least $10 billion a year, hitting a peak in the 202728 fiscal year at $18 billion.

Delays in military procurements have meant the department spent almost $12 billion less than it planned since 2017.

Giroux says pushing that spending into later years raises concerns that inflation will reduce the government’s purchasing power. “Increased spending in later years is subject to greater discounting from inflation and further compounded by expected increases in defence procurement inflation as found by previous PBO reports,” the report said.

The report found 62 per cent of capital spending has shifted to the latter half of the 20-year period instead of being evenly split, as it was when the PBO last reported on it in 2022.

In June 2022, the Defence Department announced plans for a major modernization of Norad infrastructure and capabilities that is expected to cost $38.6 billion over 20 years.

Much of that spending is set to take place after 2030.

The government has also announced several major procurements since 2022, including plans to buy 88 F-35 fighter jets at a cost of $19 billion and a $10.4-billion plan to buy P-8A surveillance aircraft.