Defence Budget 2007 – where are we now?

With Budget 2008 quickly approaching, it's time to take another look at defence spending.

Eric Lerhe, in his previous Budget commentary, accurately assessed that the defence budget for Fiscal Year (FY) 2007/2008 would be moderately increased by Budget 2007, to approximately $16.7B.

Since Budget 2007, however, spending for FY 2007/2008 was increased substantially, by over $1.5B, via Supplementary Estimates (A) for FY 2007/2008. This brings total defence spending for the current year to a total of $18.4B.

The bulk of the supplementary increase was directed to two measures: "Funding for Canada's military mission in Afghanistan" - $340M - and "Funding to strengthen the Canadian Forces independent capacity to defend Canada's national sovereignty and security (Canada First)" - $875M.

Both these spending measures are significant.

The $340M in Afghan money will bring spending for this year to at least $1B, up from $813M in 2006-2007. (More on the costs of the Afghan war available in the recent issue of CDA's On Track)

The Canada First money is more interesting, because it may well determine the Defence budgets for the next few years. Of the $875M, we can assume that $175M represents the "accelerated" $175M mentioned in Budget 2007 (this amount appears in the Supplementary Estimates, because the Main Estimates for 07/08 were released prior to Budget 2007).

It seems that an additional $700M was also accelerated, although this was not mentioned publicly.

The question now is, what impact will this have on future budgets?

The table below is taken from Budget Plan 2007, and outlines Canada First defence spending.

Canada First Defence Plan (Budgetary Basis)

2007-08 2008-09 2009-10 Total

(millions of dollars)

Budget 2006 725 1,000 1,400 3,125
Budget 2007 175 0 -175 0
Canada First defence plan implementation 900 1,000 1,225 3,125

Using the Budget table, and calculating the average Budget 2005 increases to represent a "Liberal" defence budget of $18.2B for each year, Lerhe estimated the defence budgets for 2008/2009 - 2010-2011 as follows:

FY 2008/9: $18.2B + $1B = $19.2 B

FY 2009/10: $18.2B + $1.4B - $175M = $19.42B

FY 2010/11: $18.2B + $1.8B = $20 B

However, the Tories appear to have shifted an additional $700M forward to FY 07/08 in the Supplementary Estimates (A) 07/08. While it is not clear from which other year this money has been redirected, one can presume that the government would not want the overall budget to decline in any of the next three years.

Working on this assumption, we can predict the following for Canada First Defence spending.

Canada First Defence Spending ($Millions)

FY 06/07 07/08 08/09 09/10 10/11 Total
Budget 2006 400 725 1,000 1,400 1,775 5,300
Budget 2007 175 -175 0
07/08 Sup. Est. 700 -100 -600 0
Total 400 1,600 1,000 1,125 1,175 5,300

FY 2008/9: $18.2B + $1000M = $19.2 B

FY 2009/10: $18.2B + $1400M - $175M - $100M = $19.32B

FY 2010/11: $18.2 B + $1.775B - $600M = $19.375 B

The upshot? The defence budget for the next three years will be slightly more than $19B a year, with no meaningful year to year increases.

"But wait!" some ever-hopeful defence supporters and military types will say, the Conservatives will really pour more money into defence when they win an majority government, this is just minority-Tory defence spending!

Although many fervent believers think the Conservatives are itching to open the government coffers to seriously rearm the Canadian Forces in the event they win the next election, a reality check is in order.

  1. In December, Murray Brewster of the Canadian Press reported the Conservatives are griping that the $20B the government has pledged in military equipment has produced little "political sizzle."
  2. October's mini-Budget reduced government tax revenue by over $13B, thereby reducing estimated Budget surpluses for the next two years to $1.4B and $1.3B.
  3. The US economy is either headed towards, or already in, a recession - depending on who you listen to.

Even if the Tories wanted to, there's almost no fiscal room to increase defence spending, unless they cut other programs in the middle of a possible economic downturn.

A defence budget under $20B will be the reality for the foreseeable future.