Canada moves to 2% GDP end of FY25/26 - PMMC

[ytz]

If Trump had said, "I don't believe the bounty of the US should be shared with countries that don't help defend our common prosperity," I think most people would have agreed with him and we wouldn't have been where we are. We would have increased the defence budget à bit, bitched about les Américains and moved on. Instead, he went light on China and actually argued that allies should be deindustrialized. That's some Warsaw Pact shit. And Congress didn't stop him from trying. So much for "checks and balances". Even the Supreme Court can't fix anything there apparently. So what's the point?

Time to accept that the empire is falling apart. They've crossed the Rubicon and will only get worse from here. Those of us at the periphery should plan for our own interests.

As a fan of American kit, this absolutely sucks. But my loyalty is to Canada. Not Lock Mart shareholders. I just want the transition to be orderly. Not dumb shit like buying Gripens as a knee jerk. Though I'm resigned to the fact that all transitions are chaotic and we'll do dumb shit along the way.

 

[IKnowNothing]

Who cares? This is the only way money flows. You still don't seem to get that. And the government is more than happy to pay the higher price when most of it stays in circulation here.



We've had decades where people said that about 2%. And look at where we are now.

Who knows if we'll hit 5% in a decade (and really it's 3.5% on defence and 1.5% on infrastructure and resiliency), but we are as hell won't be close if all we're doing is telling the taxpayer who can least afford it to ship more money out of country.

This is exactly what I was trying to say in the fighter thread a few weeks back. Our spending ebbed and flowed through the Cold War, but we spent decades averaging higher than 2% GDP, with a low water mark of 1.7% - Pierre Elliot Trudeau, the definition of a butter over guns PM, averaged 1.9%. Harper and JT were 1.2 - 1.3.

Even if we write off the 3.5% as unlikely, and discount the possibility of this period of geopolitical tension lasting as long as the cold war's 41 years, we're looking at piles of additional defense dollars being spent. Even just 10 years at 2.5-2.6% is upwards of 300 billion dollars (additional to baseline, 600 billion+ overall) before accounting for GDP growth. That's a lot of dough.

To me the fiscal side comes first. Regardless of the absolutist theoretical application of some dusty libertarian economics textbook, not taking the steps to spend as much of that can be reasonably* spent at home in order to avoid the perils of things costing a little more on the margin vice free market competition is... categorically silly. Estimates on the tax recovery rate on advanced manufacturing (most capital defense expenditure) are like 30-45%. Then you get down stream spending multipliers. Then IP and sovereignty and supply chain control considerations. Then you get get the potential for the goods you're able to make at home being exported, effectively reducing our net spend on said goods.

*We still need to get at least "good enough", and the cost premium can't be too onerous.

Which leads to the political side. As you say- writing cheques to send 10's of billions out of country is going to be a hell of a hard sell, and will significantly increase the likelihood that the spend level stays lower at peak, and comes off that peak faster. Spend it domestically, and Canadians will be less grudging about it.

 

[Good2Golf]

This is the only way money flows. You still don't seem to get that. And the government is more than happy to pay the higher price when most of it stays in circulation here.

Which leads to the political side. As you say- writing cheques to send 10's of billions out of country is going to be a hell of a hard sell, and will significantly increase the likelihood that the spend level stays lower at peak, and comes off that peak faster. Spend it domestically, and Canadians will be less grudging about it.

This.

We know that at least our PM understands the Expenditure multiplier concept quite well. A premium to keep as much of the expenditure in Canada, will be significantly offset by the internal multiplication flowing within Canadian industry and the supply chain.

 

[IKnowNothing]

This.

We know that at least our PM understand the Expenditure multiplier concept quite well. A premium to keep as much of the expenditure in Canada, will be significantly offset by the internal multiplication flowing within Canadian industry and the supply chain.

Rough math-

a 20% premium on an equivalent product with only a 50% domestic inclusion is more than offset by an (in band) 40% tax recovery rate, before getting into multipliers and downstream stimulus.

 

[Maxman1]

This is exactly what I was trying to say in the fighter thread a few weeks back. Our spending ebbed and flowed through the Cold War, but we spent decades averaging higher than 2% GDP, with a low water mark of 1.7% - Pierre Elliot Trudeau, the definition of a butter over guns PM, averaged 1.9%. Harper and JT were 1.2 - 1.3.

I found a site that graphs out the defense spending over the years as percentage of GDP.

World Bank Open Data

Free and open access to global development data

data.worldbank.org

You can also view the dollar amount instead, in USD.

World Bank Open Data

Free and open access to global development data

data.worldbank.org

 

[HavokFour]

More housing on the way.

Government of Canada Investing in Historic Military Housing Expansion to Support CAF Members and Families - Canada.ca

Today, the Honourable David J. McGuinty, Minister of National Defence, visited the Uplands site of Canadian Forces Support Group (Ottawa-Gatineau) to announce the launch of the second phase of Canada’s national housing construction program – a major expansion of military housing that plans to...

www.canada.ca

 

[Brad Sallows]

Who knows if we'll hit 5% in a decade (and really it's 3.5% on defence and 1.5% on infrastructure and resiliency), but we are as hell won't be close if all we're doing is telling the taxpayer who can least afford it to ship more money out of country.

"Jobs in Canada" makes a sale easier. I doubt it makes it easy enough to sell a path to 5%. Also, we're likely to have another fiscal-impacting crisis before that much time elapses.

I will say though. Your comment points to a distinct problem that I've seen at work. Lots of old guys and gals (like yourself) aren't cut out to expand the CAF. You don't fundamentally understand, accept and believe in that goal. The surest way to never get to 5%? Put in people who will manifest that failure.

The "old people" ad hominem again. I understand and accept the goal. I don't "believe in" it because I also understand and accept Canadian politics. Because I'm "old", I've lived through a few cycles of different kinds of disputes over how and where to spend public money and how they played out politically. People are carrying a lot of debt; costs are still perceived to be high (people are still adjusting to the last round of "extra" inflation) - especially housing; healthcare is short money; the new daycare-if-you-can-find-it subsidy is short money; education is short money; most governments are carrying high levels of debt and spending in deficit. Under these conditions, I expect Defence to lose at the political bargaining table.

Getting to 5% has nothing to do with the will and ability of bright young men and women who need nothing from the past, and everything to do with the will and ability of voters, and of parties like the NDP who will focus on "protecting necessary services for Canadians" and the BQ who will focus on "what's good for QC".

Although I'd like to imagine all this initial spending is being stickhandled in ways that mean we'll have acquired some coherent whole capabilities instead of batches of this and that when some of the money dries up in a year or two or three, I doubt the existence of a person or small group of people who can do that. I expect the CAF to end up with more of its usual bespoke stuff and figure out how to make best use of it. There'll be some infrastructure renewal.

Maybe if Canadian companies can figure out how to build the world's best-for-cost trucks, or armoured vehicles, or guns, or aircraft, or small ships, etc. in some niches we'll get some exporting companies that can sustain themselves instead of production runs that start and end and disperse everything learned into nothingness.

 

[Cloud Cover]

If only our business oriented sitting government with great experience organizing capital to pursue strategic objectives had identified the need to do just that and recently released some sort of directive to do so. A Military Industrial Policy or something like that.

Business Orientated Government is not how businesses describe the Carney Regime.

 

[Czech_pivo]

More housing on the way.

Government of Canada Investing in Historic Military Housing Expansion to Support CAF Members and Families - Canada.ca

Today, the Honourable David J. McGuinty, Minister of National Defence, visited the Uplands site of Canadian Forces Support Group (Ottawa-Gatineau) to announce the launch of the second phase of Canada’s national housing construction program – a major expansion of military housing that plans to...

www.canada.ca

When it says '1,000 new housing units in Valcartier and Petawawa' - does this mean 'net new' housing units or building 1,000 new units and the removal of 1,000 or 250 or 475 or 800 units? Any ideas on this?

 

[IKnowNothing]

Business Orientated Government is not how businesses describe the Carney Regime.

With respect- its possible that the businesses represented in the "very dark blue / dyed in the wool" North Okanagan do not represent the universal opinion of businesses in Canada

 

[FJAG]

I will say though. Your comment points to a distinct problem that I've seen at work. Lots of old guys and gals (like yourself) aren't cut out to expand the CAF.

This.

And coming from an old guy like I am.

Militaries in general, and Canada's in particular, take great comfort in the bureaucratic process where risk is spread around and failure hidden from the overseers in government. We have a military leadership - and have had such a leadership for decades - that does not see beyond today's issues. Canada's force structures, procurement programs, and general way it does business is almost exclusively focused on what needs to be done in peacetime with the manpower allocated. It expends much treasure in running a bureaucracy that oversees administrative functions and yet does nothing to expand, or even plan to expand, the hard defence outputs needed by the country. It tweaks them from time to time but never grows them.

Very little energy or resources are dedicated to planning how to create that "great host," as General Belzile called it. And let's be clear, before I get hauled up for thinking historically, I don't see Belzile's call being one to recreate Canada's WW2 forces. I see it simply as a call to plan and to take the necessary steps to shape the Canadian military/industrial system to be able to expand rapidly beyond its current regular force construct.

I know that I'm sitting on the outside looking back in, but there is very little about the army's current modernization "experiment" which strikes me as one aimed at addressing the fundamental issues plaguing it. It's yet again another timid deck chair shuffle that creates a bit better position for some but a worse position for others without any demonstrable increase in fighting power. I see the air force and navy a bit more forward leaning.

This is a point in time of great opportunity. The challenges facing the country and the government's willingness to react haven't been this great for over a half a century. Canada's military leaders need to boldly step up with a vision that truly aims to reshape the Canadian military/industrial complex.

"Jobs in Canada" makes a sale easier. I doubt it makes it easy enough to sell a path to 5%. Also, we're likely to have another fiscal-impacting crisis before that much time elapses.

"Jobs in Canada," especially high-paying industrial work, will definitely make it easier. There are already many job funding schemes the Feds operate. Redirecting that money to growing defence industries could be a zero-sum process. I can't see why a "fiscal-impacting crisis" should interfere with what is a % of GDP goal rather than hard and fixed dollars. The key is that the defence dollars do not simply fall into a bottom-less pit, but actually show demonstrable gains in defence capability. That's my big beef of the last decade. Defence spending has been climbing but there is little to show for it.

Maybe if Canadian companies can figure out how to build the world's best-for-cost trucks, or armoured vehicles, or guns, or aircraft, or small ships, etc. in some niches we'll get some exporting companies that can sustain themselves instead of production runs that start and end and disperse everything learned into nothingness.

I agree with the need to have sustainable equipment production that carries on for many decades rather than in short and brief orgies. "Boom then bust" doesn't work, and yet we do it over and over again. It's not the companies that need to figure it out; its for the military and the procurement system to work the projects from cyclical to continuous. I sometimes wonder if that would be easier if much of the core R&D and manufacturing capabilities were rolled into a, or several, Dominion Arsenals crown corporation(s) rather than left entirely to public companies. The guy that welds the armour on a tank doesn't care where his paycheck comes from.

 

[ytz]

This.

And coming from an old guy like I am.

I personally don't even think I'm the right person to participate in an expansion. Need a bunch of 30 somethings who didn't do Afghanistan and don't have GWOT era biases.

I have i sat in Horizon 2 and 3 discussions where the AI threat is discussed as "we'll have deep fakes.".

The sheer amount of capability coming online by 2025 is more transformation than the CAF has done since the big chop at the end of the Cold War. Nobody serving today has seen anything like this. Let alone pulled off something like this. And now the government is actually stepping on the gas.

I agree with the need to have sustainable equipment production that carries on for many decades rather than in short and brief orgies. "Boom then bust" doesn't work, and yet we do it over and over again. It's not the companies that need to figure it out; its for the military and the procurement system to work the projects from cyclical to continuous.

This is the government's attempt to do to several other sectors what was done to shipbuilding. Capacity building. Long term demand signal. Public investment. Price is no longer a major determinant.

I sometimes wonder if that would be easier if much of the core R&D and manufacturing capabilities were rolled into a, or several, Dominion Arsenals crown corporation(s) rather than left entirely to public companies. The guy that welds the armour on a tank doesn't care where his paycheck comes from.

There's a kernel of this in BOREALIS.

 

[Colin Parkinson]

More housing on the way.

Government of Canada Investing in Historic Military Housing Expansion to Support CAF Members and Families - Canada.ca

Today, the Honourable David J. McGuinty, Minister of National Defence, visited the Uplands site of Canadian Forces Support Group (Ottawa-Gatineau) to announce the launch of the second phase of Canada’s national housing construction program – a major expansion of military housing that plans to...

www.canada.ca

JT was stupid, this was always an easy way to boost military spending within Canada, without pissing off his granola base.

 

[Brad Sallows]

I can't see why a "fiscal-impacting crisis" should interfere with what is a % of GDP goal rather than hard and fixed dollars.

A government fiscal crisis doesn't always have to be a broad economic crisis; revenues can shrink by a greater proportion than GDP contracts (if it contracts).

A typical fiscal crisis is a drop in revenue and increase in spending. On the revenue side, government can still aim to spend its "5%", but either that's a suddenly lesser amount (if GDP and revenues contract roughly the same amount) or the amount is maintained by borrowing or at the expense of other spending. The spending side is usually under a lot of pressure to increase for one-time supports and increased numbers of claims on existing programs. (Governments rarely increase taxes in the middle of a crisis; it's economically and politically foolish.)

It was difficult for the Mulroney government to meet ambitious defence spending goals because it put higher priority on achieving an operating surplus and was still faced with a large debt-driven net deficit. It was difficult for the Harper government to do more because it committed to maintaining Martin's health accord - 6% increase each year. At least we had one example of a Liberal government handing over a budget surplus to a Conservative government. I doubt that will happen again. The left-leaning parties have moved further left. Now, a surplus or even just a low debt-to-GDP ratio is treated as an opportunity to spend. If a conservative government ever achieves either again, I expect to see the opposition campaign on promises to spend it.

In the worst case it's possible to create conditions for another debt-driven downward spiral. All that's needed is a deficit and time.

 

[Czech_pivo]

A government fiscal crisis doesn't always have to be a broad economic crisis; revenues can shrink by a greater proportion than GDP contracts (if it contracts).

A typical fiscal crisis is a drop in revenue and increase in spending. On the revenue side, government can still aim to spend its "5%", but either that's a suddenly lesser amount (if GDP and revenues contract roughly the same amount) or the amount is maintained by borrowing or at the expense of other spending. The spending side is usually under a lot of pressure to increase for one-time supports and increased numbers of claims on existing programs. (Governments rarely increase taxes in the middle of a crisis; it's economically and politically foolish.)

It was difficult for the Mulroney government to meet ambitious defence spending goals because it put higher priority on achieving an operating surplus and was still faced with a large debt-driven net deficit. It was difficult for the Harper government to do more because it committed to maintaining Martin's health accord - 6% increase each year. At least we had one example of a Liberal government handing over a budget surplus to a Conservative government. I doubt that will happen again. The left-leaning parties have moved further left. Now, a surplus or even just a low debt-to-GDP ratio is treated as an opportunity to spend. If a conservative government ever achieves either again, I expect to see the opposition campaign on promises to spend it.

In the worst case it's possible to create conditions for another debt-driven downward spiral. All that's needed is a deficit and time.

Sorry, you're saying that Carney's government is 'left leaning' and has 'moved further left'. Is that what you meant to say?