The Defence Budget [superthread]

[Monsoon]

We could get a lot more done with the budget we already have, however the majority of it is lost now before it can be used by the department.

Dirty secret: money not spent by the department in a given year does not get lost under the new accrual accounting system that replaced the old cash accounting system. Cash accounting is what's used for unit-level budgets: if you don't spend it by 31 March, it "disappears"; not so at the department level where the money carries over as long as it has been committed. A large number of projects in the past couple of years have been funded out of accrual - yet another advantage this department enjoys today that it did not during the decade of darkness.

 

[McG]

Percent-of-GDP defence spending is one approach to broader policymaking, but it's not how the bullets and beans get bought. I promise you the $18.9B we're spending next year is still more than the $9.8B we got in 1998. The fact that this gov't isn't advertising that is a indication of their interest in restoring funding to the escalated baseline. Put another way, the government currently spends 8.7% of the total federal budget on defence, as opposed to 6.7% in '98 - an increase of 23%.

If you are going to look at dollar value, then you need to use a constant dollar value.  $9.8B in 1998 is over $13B in 2013 or 2014, assuming military inflation has not exceeded consumer inflation.

http://www.bankofcanada.ca/rates/related/inflation-calculator/

So go back to here:

http://army.ca/forums/threads/82898/post-1313325.html#msg1313325

and scroll down a post to see that our funding, while maybe not at the lowest low, has returned to "decade of darkness" levels in constant dollars.

 

[Monsoon]

If you are going to look at dollar value, then you need to use a constant dollar value.  $9.8B in 1998 is over $13B in 2013 or 2014, assuming military inflation has not exceeded consumer inflation.

http://www.bankofcanada.ca/rates/related/inflation-calculator/

So go back to here:and scroll down a post to see that our funding, while maybe not at the lowest low, has returned to "decade of darkness" levels in constant dollars.

As luck would have it, I consulted the Bank of Canada's inflation calculator before I made my last post. And as I'm sure you noticed, the BoC inflation calculator for $9.8B from 1998 equals $13.8B in 2014 dollars. In other words, the $18.9B budget we enjoy today is 37% higher in real terms than it was in the '90s.

The only reason I didn't mention it in my original post is that I have no idea why you would bother to have mentioned numbers that further undermine your mistaken belief that the present government has somehow been worse for defence spending than the previous. Yes, I understand a journalist wrote something to that effect. But he's demonstrably wrong. DND is much, much better off than it was in the '90s, and that fact is reflected in every meaningful gauge of the numbers.

 

[jollyjacktar]

But are we really?  OK, you've shown the buck is worth more but the cost of things is substantially more too.  I wish l was paying the same price for consumer goods l was then.  And our wages have increased substantially too.  I fear that all eats into the buck is worth more argument to the point it's not really a point anymore.  Maybe the CPC are dishing out more but they're more talk than real action.  Just look at the NVC and their doing jack shyte to fix it if it needed it as many believe.

 

[Monsoon]

But are we really?  OK, you've shown the buck is worth more but the cost of things is substantially more too.  I wish l was paying the same price for consumer goods l was then.  And our wages have increased substantially too.  I fear that all eats into the buck is worth more argument to the point it's not really a point anymore.

Absolutely - that's why I used inflation-adjusted numbers above. Even after inflation, we're about a third ahead of '98.

Maybe the CPC are dishing out more but they're more talk than real action.  Just look at the NVC and their doing jack shyte to fix it if it needed it as many believe.

Look - I'm not the "everything is awesome" guy. For sure, DND has had to take its share (or slightly less than that) of the post-financial crisis budget cutting. What's been difficult for the past couple of years is that we were told in 2006 to start planning for a budget of "X", but we've had to make do with somewhat less, which means projects have to get dumped or pennies have to get squeezed to keep things moving along. That's never fun, but what gets me is when people within the CAF itself start buying into this revisionist history where we're told knowingly by political hacks that the '90s cuts were "no biggie" compared to what's happening now. As someone who lived through both rounds of cutting, I know for a fact that that just ain't the case and the numbers support my observations.

We could always hope for more from the gov't - and to be sure their walk doesn't fully match their talk - but things could be and have been a helluva lot worse.

 

[McG]

... their walk doesn't fully match their talk ...

And this is the argument I am making.  They are presenting themselves as the champions of the CAF while spending the same as when the Liberals left power and sabre rattling for a fight through which our allies would have to carry us.  It measures-up as a little baloney. 

Baloney Meter: Is the Harper government really spending more on military?
Murray Brewster, The Canadian Press
11 Sep 2014

OTTAWA -- "Canada has been increasing the defence spending, as I mentioned in London and elsewhere. It's up some 27 per cent since we took office. And more importantly, a significant percentage of that expansion of expenditure is investments in equipment and capacities of the Canadian Armed Forces for the future." -- Prime Minister Stephen Harper
-----

Last week, the prime minister defended his government's record on defence spending in the face of pressure from NATO allies who want to see Canada set aside more money for the military in light of growing unrest in eastern Europe and the Middle East.

Is the Conservative government adequately funding the military, as it claims?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements, culminating in a ranking of accuracy on a scale of "no baloney" to "full of baloney" .

This one earns a rating of "some baloney." Here's why:

THE FACTS:

The latest federal budget projects that National Defence has been allocated a budget of $18.2 billion in 2014-15, down from an Afghan wartime high of $21.1 billion in 2009-10.

As part of its drive towards an overall balanced budget in 2015-16, the Conservative government instituted three lines of spending cuts and restraint over successive budgets.

They included a strategic review of spending, the deficit reduction action plan, known as DRAP, and a measure within the 2010 budget that required each department to absorb the cost of negotiated wage increases with civil servants.

The cuts were phased in and amounted to an annual $2.46-billion per year reduction at National Defence.
In addition, the military is facing "additional planning pressures" not accounted for in the main lines of spending cuts.

These expenses include the cost of severance for laid off civilians at defence; the bill for the government's pledge to sustain newly trained Afghan forces; and the cost of operating the Public Works secretariat that is picking a replacement for Canada's aging CF-18 fighters.

The latest federal budget also postponed $3.1-billion in capital spending on equipment that had been slated for the years between 2014 and 2017.

While the government has promised to "reprofile" the funds to future years, it has not spelled out when the money will be returned to the military's capital budget.

When the Conservative government came to power, National Defence's budget was $13.4 billion, according to the 2004-05 main estimates. The Liberal government of Paul Martin committed in its last budget to spend an additional $2.6 billion per year.

A decade later, defence spending is $4.8-billion higher, a nominal increase of roughly 27 per cent, but when inflation is taken into account, the difference shrinks to seven per cent.

Six years ago, the prime minister pledged the military would receive a "stable and predictable" two per cent funding increase, starting in 2011.

The escalator, as it's known, amounts to about $350 million per year and continues to be delivered, but it's been more than offset by reductions elsewhere in the defence budget.

Canada will spend about one per cent of its gross domestic product on the military this year, down from 1.3 per cent in 2009.

WHAT THE EXPERTS SAY:

The numbers have been repeatedly crunched by Dave Perry, an analyst with the Conference of Defence Associations, and there can be no argument that spending has fallen over the last few years.

"It definitely did increase up until 2010, (but) they've clearly cut spending," Perry said.

Some important contextual information is missing from the blanket assertion that spending has gone up, he added -- notably the eroding influence of inflation.

"It's still an increase, but when you look at the actual purchasing power, the increase is far less significant that the 27 per cent nominal figure would imply," said Perry, who is also a doctoral candidate in political science at Carleton University.

Another factor that doesn't get mentioned is that over the last decade, even when the government was pumping more money into the military, National Defence has not been able to spend all of its budget allocation.

Since 2006, National Defence has been forced to return $9.6 billion to the federal treasury, according to a July 2013 analysis by the parliamentary budget office.

The prime minister was very clear in his marching order for cuts in 2012, pointedly telling the department that he wanted reductions focused on back room administration and a bloated headquarters establishment.

"The Forces must be restructured to ensure administrative burdens are reduced and resources freed up for the front line," Harper said on Oct. 29, 2012. "The Canada First Defence Strategy must continue to advance, and as I've said before, with the constant search for more teeth and less tail."

So, what impact have the reductions had?

All branches of the military tightened their belts and combined headquarters, but the big savings have come in the area of readiness, where there have been fewer flying hours, more simulator time for pilots and an army that's been parking trucks and conserving training ammunition.

University of Ottawa defence expert Phillippe Lagasse said the army has been hit particularly hard. The only exception has been special forces, which have enjoyed consistent funding.

As it currently stands, Canada would be unable to mount a sustained deployment of troops to the world's hotspots because of the cuts, according to multiple internal National Defence documents.

"Readiness has been a more immediate and obvious place to make short-term cuts," Lagasse said.
Harper's bid to cut the back room has largely fallen flat.

"This idea that you can magically find a whole bunch of savings in the administrative structure; that's not true," said Lagasse. "That's not instantaneous. It takes time and it takes a real understanding of where you want to trim."

The government has not funded the military to the extent that it promised in its 2008 defence strategy, which envisioned an investment of $490 billion over 20 years, he added.

"But we've always known that."

THE VERDICT

The experts agree that Harper is correct to say the defence budget has increased substantially, but some important qualifications have been left out of his argument.

The Conservatives have cast themselves as defenders of the military and criticism of their record is bound to sting, but both Perry and Lagasse say the numbers are the numbers.

For that reason, Harper's statement earns a rating of "some baloney."

http://www.ctvnews.ca/politics/baloney-meter-is-the-harper-government-really-spending-more-on-military-1.2001899

I have said that things will not be so bad as before if we manage our money responsibly, and do the hard analysis to make the right as opposed to the easy cuts.  Unfortunately, I am not convinced that is happening.  And the money is certainly not there to repair/develope defence capability.

 

[Edward Campbell]

There is another important but even less easily discussed than inflation aspect: the nature of the defence industry, itself.

Fifty to 75 years ago the defence industry was robustly competitive and, consequently, prices, including R&D costs, were (relatively) low. Consider, just as one example, in the high cost aerospace field the fate of North American Aviation: it was founded in 1928 but only became a manufacturing company in 1934; it designed, developed and produced, amongst other things, the T-6 Texan trainer, the P-51 Mustang fighter, the B-25 Mitchell bomber, the F-86 Sabre jet fighter, the X-15 rocket plane, and the XB-70, as well as Apollo Command and Service Module, the second stage of the Saturn V rocket, the Space Shuttle orbiter and the B-1 Lancer.

                                          P51 Mustang                                                        through                                    F86 Sabre                                            to                              B1 Lancer

But that did not keep North American from being swallowed up by Rockwell which was, in its turn, swallowed by Boeing. The chain of mergers resulted, in some respects, from qualitatively better aircraft: consider, just for example, the performance envelopes and the Reliability-Availability-Maintainability data for the North American F86 versus the McDonnell Douglas* F18 Hornet, both flown by the RCAF. We used to have 12 F86 fighter squadrons operating from four flying stations in Europe (Baden-Soellingen, Grostenquin, Lahr and Marville) we replaced them, eventually, with three squadrons on one base. Why? Were the new airplanes more expensive? Yes, that's one part of the answer, but the new aircraft were, also, much, Much more capable - they could fly farther, faster, more regularly (because they were more reliable) and they could do much more once in their target areas. We could, and did, "do more with less." But the development and production costs of the new aircraft were, at least an order of magnitude higher, even allowing for inflation, so going from 300 to 36 aircraft did not consume a lesser slice of the defence budget.

Similar things happened to ship building, engine technology, guided weapons, radios, radars and electronics and so on. Performance improved, continuously and measurably, but costs, especially development costs, escalated at even greater rates and the consolidation of the defence industrial base, throughout the US led West, meant that there was less competition, with the expected consequences. "Competition" in aerospace, for example, now occurs almost only when a Western government of group of government have a design competition, essentially a set of unprovable promises about engineering and finance, and then direct a contract to the winner ... cost containment is, in practice, impossible.

(I can recall when the CDS of the day, Gen Jacques Dextraze, went to "war" against Mil Specs because he was persuaded that they were overly restrictive - making real market competition even more difficult - and precluding "good enough" products. The result was the CUCV, the Commercial Utility Cargo Vehicle, the 5/4 ton truck in the CF, which ended up not saving a whole lot of money because it required extensive adaptation (a 12V to 24V conversion, as one example, a completely new electrical suppression system retrofit as another) before it could enter full service. Gen Dextraze's original idea ~ "why can't those big, tough, all weather logging trucks work in the military?" ~ never got properly answered, but it made us nervous about adapting commercial systems, except, perhaps, in ships where the MCDVs have demonstrated their fully adequate sea keeping capabilities.)
 
There have been at least a few PhD dissertations on this topic, but there are, also, other problems, including corruption and bad management ... consider, just for example, Prince Bernhard of the Netherlands and the Lockheed bribery scandals and the whole 'business' of regional industrial benefits in Canada. The defence industry has, traditionally, been complicit in projects that add new costs to their products, costs which the corporate shareholders are (properly) unwilling to bear and which must, therefore, be borne, eventually, by the customer ~ taxpayers in America, Britain, Canada and so on ~ through higher prices.

_____
* Also swallowed up by Boeing.

Edit: typo

 

[Kirkhill]

"Fail to Plan. Plan to fail."

But how about "Planned failure".

Any plan can be made to work. Equally any plan can be made to fail.  If the participants are disinterested then the proponents of the plan must work harder to make the plan succeed.  If, on the other hand, the participants are actively opposed then the success of any plan becomes a contest of wills. And if the proponents are not actively engaged in conducting the operations necessary to ensure the plan's success then the opponents have the field to themselves and the plan fails to the embarrassment of the proponents.  And often to the delight of the opponents.

I am not saying that I have any knowledge of the politics or Politics of these issues but I would suggest that if I thought that Jadex's notions on buying commercial vehicles were ridiculous then I could probably find a way to follow orders and buy the least effective solution.  Or I coiuld probably find a way to follow orders and still drive the cost of a 70 million Norwegian Arctic Patrol Ship into an unaffordable Canadian Arctic Patrol Ship.  Or I could probably find a way to follow orders and cut the budget by reducing training, readiness and capital acquisitions while maintaining middle management positions.

My sense of the likelihood of planned failure is based on a lot of personal bruises collected over thirty years of trying to make things happen - not in your field but in the civvy world of my labours.

Advice, or as it is known in your circles, orders (more specifically Commander's Intent) never results in the intended outcome unless the Commander is actively engaged in driving the plan to success.  If the Commander isn't there then he is pushing on a rope at best.

If the Government commands a reduction in staffing and overhead then the only way they are going to achieve that is to actively get involved in the hiring and firing and day to day operations.... and I can see the headlines already.

Edit to add:

I wonder if Samuel Pepys, or even C.D. Howe, could operate effectively in the modern Canadian environment.

 

[McG]

Expect to see 2015/2016 continue without the resources to sustain training and readiness.  Predictions are that the budget freeze will continue if it is not accompanied by cuts.  This will be the cost of recently announced spending and tax cuts followed by falling oil prices.

http://www.cbc.ca/news/politics/spending-cuts-may-come-in-spring-budget-conservatives-signal-1.2913133

http://www.ctvnews.ca/politics/feds-may-extend-spending-freeze-to-balance-budget-kenney-1.2194134

 

[Good2Golf]

Absolutely - that's why I used inflation-adjusted numbers above. Even after inflation, we're about a third ahead of '98.
Look - I'm not the "everything is awesome" guy. For sure, DND has had to take its share (or slightly less than that) of the post-financial crisis budget cutting. What's been difficult for the past couple of years is that we were told in 2006 to start planning for a budget of "X", but we've had to make do with somewhat less, which means projects have to get dumped or pennies have to get squeezed to keep things moving along. That's never fun, but what gets me is when people within the CAF itself start buying into this revisionist history where we're told knowingly by political hacks that the '90s cuts were "no biggie" compared to what's happening now. As someone who lived through both rounds of cutting, I know for a fact that that just ain't the case and the numbers support my observations.

We could always hope for more from the gov't - and to be sure their walk doesn't fully match their talk - but things could be and have been a helluva lot worse.

Retail inflation is not as high as Defence inflation, which many references note to be on average about 3% higher than retail.  Compound a 3% difference for nine years and you get a 30% additional inflation factor, which pretty much eats up the "we're one third better off..."  If we were procuring commercially available, unmodified equipment that was not impacted by the relatively high impact of generally much more skilled labour implicated with defence systems, then using the BoC's CPI would not be unreasonable.  Military equipment, even COTS/MOTS, rarely finds itself tied to consumer indices.


Regards
G2G

 

[McG]

... And that is why we are already down to 5 vs 8 AOPS.

 

[Monsoon]

Retail inflation is not as high as Defence inflation, which many references note to be on average about 3% higher than retail.  Compound a 3% difference for nine years and you get a 30% additional inflation factor, which pretty much eats up the "we're one third better off..."  If we were procuring commercially available, unmodified equipment that was not impacted by the relatively high impact of generally much more skilled labour implicated with defence systems, then using the BoC's CPI would not be unreasonable.  Military equipment, even COTS/MOTS, rarely finds itself tied to consumer indices.

Not to get drawn into an old thread again, but defence inflation is only properly applied to large capital procurements (and in this it runs to closer to 7%). Since we procured virtually nothing of significance between 1993 and 2006, the effect on the budgetary bottom line in that period is negligible. The single biggest component of the defence budget is pay - which has been quite tightly pegged to consumer inflation.

And all those procurement deferrals from the 1990s to today have made the cost of buying the equipment today that much higher as a result of defence inflation. And that's part of why we can now afford less than we need.

 

[dapaterson]

Defence inflation applies equally to defence-specific supplies consumed in day to day activities - ammunition & spares, for example.

 

[Monsoon]

Defence inflation applies equally to defence-specific supplies consumed in day to day activities - ammunition & spares, for example.

I'd definitely welcome a reference for that. Certain specialty ammunition I could definitely see, but routine spares are typically part of any procurement project's lifecycle cost (obviously spares beyond the projected lifecycle would be the exception here).

In any case, I think we can agree that just applying "defence inflation" to the DND main estimates isn't how it works. At best it's a ballpark aggregate of specific costs that don't necessarily track CPI (the cost of steel and energy, notably), applying principally to procurement, and is a thumbnail measure at that.

 

[McG]

Project and equipment lifecycle are two different things that should not be confused.

Major crown projects provide for initial parts provisioning ... A couple years at most.  Most spare and replacement parts are contracted through the lifecycle of the equipment after the projects have closed.  Inflation applies.

 

[dapaterson]

Correct, initial provisioning is two years of spares or ISS; beyond that, spares are part of national procurement.

Admittedly, not all spares should be inflated using a specific defence escalator. But there is a significant amount of defence procurement outside the capital program where costs increase more than CPI.

 

[Kirkhill]

Expenditures:

People (Pay, Benefits and Training)
Infrastructure (Buildings and Bases)
Capital (Non-military and Military)
Consumables (Beans, Bandages, Batteries, POL, Bullets)

What per cent of the budget is spent on Military Capital and Bullets?

Inflation at 7% vs 3% can have a significant impact on a project budget while not grievously impacting the department budget.

This is particularly true if the capital budget (military) is only 10 to 20% of the total budget.

7% - 3% = 4% of the 10 to 20% or 0.4 to 0.8%

And if a quarter of that 10 to 20% is unspent annually (2 to 5 %) of the total budget that would more than compensate for the inflation factor.  Especially if the unspent portion were put into escrow against future expenditures.  IMO.

(Hopefully my arithmetic is tracking again - Christmas vacation is over).

 

[McG]

Expenditures:

People (Pay, Benefits and Training)
Infrastructure (Buildings and Bases)
Capital (Non-military and Military)
Consumables (Beans, Bandages, Batteries, POL, Bullets, Parts)

What per cent of the budget is spent on Military Capital and Bullets and Parts?

You missed something.  In your consumable costs, don't forget those unique military bits and sub-assemblies required as replacements to keep the existing capital equipment in service.  Ammunition is not the only consumable more subject to a military inflation vs a consumer inflation.

 

[Kirkhill]

Good point. Thanks.

So how much of the departmental budget goes to the supply of military parts?  More than or less than 10%?

 

[MilEME09]

Good point. Thanks.

So how much of the departmental budget goes to the supply of military parts?  More than or less than 10%?

wasn't the spare parts budget cut over the past year though? I know my unit saw a sharp drop in ours. That said I recently read an interview with the commander of the army in the new issue of Canadian defense review, and there appear to be some ambitious plans afoot, and I dont see when the funds will come from. For example he says the LVM program will have tender starting in 2017 to replace the LSVW and HLVW fleets, with final delivery by 2022. The Ground based Air & Munitions defense project is in the per-identification phase to procure ground based air defense platform(s). among other programs and pieces of kit.