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One of the country’s leading economic think-tanks is warning that the federal government needs to develop a “credible fiscal plan” to deal with the impact of drastically higher defence spending.
A new report by the CD Howe Institute, released Thursday, said meeting NATO’s new benchmark goal of five per cent of the gross domestic product (3.5 per cent in direct military expenditures and 1.5 per cent on defence infrastructure) is a dramatic reorientation of the federal balance sheet.
Colin Busby, the director of policy engagement at the institute, said the combined $150 billion per year in defence spending rivals what Ottawa spends in health and education transfers to the provinces.
The institute is proposing a modest increase in the GST and restraining the growth of non-defence spending and provincial transfers as a practical solution.
“The best time to have this conversation is now because the credibility of this fiscal plan is extremely important,” Busby told CBC News in an interview.
Prime Minister Mark Carney’s government announced last week it had achieved the milestone of spending two per cent of GDP on defence after years of Canada avoiding the target.
For the first time since the 80’s, and after much pressure, Canada has hit NATO’s defence spending target. Minister of National Defence David McGuinty speaks to CBC News Chief Political Correspondent Rosemary Barton about how Canada achieved the milestone.
Next NATO goal is 5%
However, last year, NATO leaders raised the bar to establish the new five per cent goal, which is to be achieved over the next decade.
Carney has argued that investments in defence — especially dual-use technology — will pay economic dividends. Nevertheless, following last year’s NATO summit, he acknowledged that “trade-offs” could come later in the decade as the spending reaches higher levels, requiring “social licence” from Canadians.
Busby said he was concerned that the latest federal budget, presented last November, contained no long-term plan for how the federal government will attempt to manage the enormous increase relative to other federal spending.
U.S. President Donald Trump is lashing out at NATO, calling allies ‘cowards’ for not supporting the U.S.-Israel war in Iran. These comments come as Canada signs a joint statement with six other allies saying it’s ready to help protect the Strait of Hormuz. Erin O’Toole, former veterans affairs minister and retired captain in the Royal Canadian Air Force, joins Power & Politics to discuss.
In fact, Finance Minister François-Philippe Champagne’s fiscal plan contained no five-year projection for defence spending, unlike previous budgets. It only presented a global figure of adding an extra $81.8 billion to the Department of National Defence over the next half decade.
Since the budget, DND has refused to release a year-by-year projection of how much the defence appropriation will increase.
“There’s all kinds of questions that I think are raised by where we’re at now,” said Busby, who added that in the absence of data, those concerned with public finances will be forced to fill in the blanks.
Increases a concern across NATO alliance
The issue of how the huge increases are going to be paid for is an issue across the NATO alliance, Busby said.
“I’m concerned about not just Canada, but other countries as well, putting off this question and debt financing this entire increase,” he said. “And then you can see an assortment of NATO countries that are in fiscal trouble and facing major fiscal challenges.”
France and Italy both are expected to have a tough time hitting the new NATO benchmark because they are severely constrained by high levels of public debt. The French government has ruled out a tax increase.
The United Kingdom and Germany are also struggling to define paths to five per cent. London in particular is dealing with major budget constraints and Berlin is navigating high spending demands.
Source: cbc
