Evidence of meeting #7 for Industry and Technology in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was procurement.
A recording is available from Parliament.
Liberal
The Chair Liberal Ben Carr
I'm sorry, Mr. Falk, but we're 30 seconds over. My apologies.
Thank you.
Mr. Bardeesy, go ahead for five minutes.
Liberal
Karim Bardeesy Liberal Taiaiako'n—Parkdale—High Park, ON
Thank you so much.
I'm going to focus my questions on the defence industrial policy study we're doing. I want to pick up a few of the threads Monsieur Ste-Marie and Mr. Falk laid.
Earlier in the conversation, you mentioned you're going to give some guidance on capital versus operating more generally. Specifically with respect to defence procurement, we know there is going to be a need for hardware procurement, but we also know the defence sector is changing and software procurement is probably going to be a bigger part of defence procurement going forward. Software procurement has capital-like features, but it's not goods you can point to.
I'm wondering if you can speak to how software procurement in defence spending might be treated. What is your thinking on that?
Senior Advisor, Office of the Parliamentary Budget Officer
Our office does track capital spending by National Defence and, as of recently, the Coast Guard. We are not enabled by the legislation to release any information the department doesn't allow us to release, so we can't talk about specific projects.
We have a capital spending report that is going to come out later this month, most likely; I think I might have just painted us into a corner, but yes, we're planning on releasing it later this month. We don't parcel out the different aspects of capital spending, other than perhaps we'll look at the different environments, as we call them—army, navy, air force, joint—but there will probably not be a separate section for software capital.
Liberal
Karim Bardeesy Liberal Taiaiako'n—Parkdale—High Park, ON
I have a couple of questions about ITBs. Again, Monsieur Ste-Marie was asking about these.
In your summary brief, you mentioned Canadian firms accounted for 30% in the past study. Are there benchmarks for other countries that have policies similar to ITBs? Is there an objective we should be aiming for?
Senior Advisor, Office of the Parliamentary Budget Officer
I can't speak to an objective. I can say, however, that virtually every developed country levies some type of program. Pretty generally, those of us who are nerdy enough to call ourselves defence economists call them trade offsets or defence offsets, and most countries engage in this. I wouldn't speak to any benchmarks that would say it's better or worse.
Liberal
Karim Bardeesy Liberal Taiaiako'n—Parkdale—High Park, ON
Is it fair to assume that a greater proportion of Canadian firms' involvement in ITB going forward could lead to greater tax revenue in the revenue calculations you're looking at?
Senior Advisor, Office of the Parliamentary Budget Officer
I see nothing objectionable about that statement.
Liberal
Karim Bardeesy Liberal Taiaiako'n—Parkdale—High Park, ON
Governments like to talk about the potential revenue uplifts from all kinds of policies, but it's important to put on the record that you've already identified that defence spending has multiplier effects that are perhaps greater than other forms of spending.
Senior Advisor, Office of the Parliamentary Budget Officer
As I said, it's one of the things we're going to be studying more in the future, but yes, as Mr. Jacques and I have already mentioned, our economic modelling takes into account the multiplier effect of investments in defence.
Liberal
Karim Bardeesy Liberal Taiaiako'n—Parkdale—High Park, ON
A couple of my colleagues have spoken to this, but I want to see if there are more points that can be put on it. There is a cost of not acting, and there is a potential fiscal cost of not acting in defence procurement or national security more generally.
In the world you occupy, of defence economics, in particular, how do they think about that? Even if it isn't something they would publish with numbers, can you talk to us about how those kinds of things are discussed?
Senior Advisor, Office of the Parliamentary Budget Officer
When it comes to the study of defence in economics, one of the things that are really hard to measure is the output. What is the output? The output is we get to have a country and we're able to protect ourselves. It's not like when we have a capability for tanks, for instance, or fighter aircraft or something like that. How much is that worth? How do you put a price tag on that?
Essentially, it's one of the primary confounding things in that area of study.
Liberal
Karim Bardeesy Liberal Taiaiako'n—Parkdale—High Park, ON
Do I have time for one more question? No. Okay.
Thank you.
Liberal
The Chair Liberal Ben Carr
Colleagues, because we are a little under the time, we don't have time for a full round. I'm going to Mr. Ste-Marie for two and a half minutes, the Conservatives for two and a half minutes and then the Liberals for two and a half minutes.
Go ahead, Mr. Ste-Marie.
Bloc
Gabriel Ste-Marie Bloc Joliette—Manawan, QC
Every time that he meets with the Prime Minister of Canada, the President of the United States talks about his “Golden Dome” protection project.
Mr. Penney, to your knowledge, if Canada were to fund this type of protection project for both countries, what economic benefits or financial impact could this entail for the federal government and the Canadian economy?
Senior Advisor, Office of the Parliamentary Budget Officer
It's very hard to say, especially at this nascent phase when the project has only been announced. We've seen the media reports about it, but we don't really know what's going into it and we don't know how much we're going to pay. For better or for worse, we're intertwined with the United States via NORAD and NATO, and those investments, certainly for NORAD, will continue at pace, regardless.
We haven't looked at the golden dome and what exactly that entails for the Canadian economy.
Bloc
Gabriel Ste-Marie Bloc Joliette—Manawan, QC
So we have the name of the project, but the details are yet to come. Thank you.
Suppose that Canadian defence equipment exports to the United States were subject to additional tariffs. Could you model this scenario to see the potential impact on our public finances and the Canadian economy?
Senior Advisor, Office of the Parliamentary Budget Officer
It would be difficult to look at that in real time. In terms of modelling and using data, the tariffs are very new, and it would take some time for us to really ascertain exactly what the impact has been.
As I mentioned before, 63% of ITB dollar value comes from American-owned firms. Would it levy tariffs on those? Honestly, we haven't studied that in great detail as of yet.
Bloc
Gabriel Ste-Marie Bloc Joliette—Manawan, QC
Thank you.
I believe that the American government would be able to impose tariffs on its own companies for products manufactured in Canada. This is something to keep an eye on.
Liberal
The Chair Liberal Ben Carr
Thank you, Mr. Ste‑Marie.
Madam Dancho, you have two minutes and 30 seconds.
Conservative
Raquel Dancho Conservative Kildonan—St. Paul, MB
Thank you, Mr. Chair.
My question is about the defence procurement agency. Canada has a considerable issue with its procurement process in the military. It takes a very long time to procure the equipment we need. Do you have a budget number for this new agency, or is it going to be an amalgamation from existing department apparatus?
My understanding is that we have a very large bureaucracy in charge of procurement now. Is this within that, or will it be additional to that? Do you have a budget figure for it at all?
Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Our most recent economic and fiscal outlook was finalized before that announcement occurred, so we don't have figures on that. That said, we will be obtaining additional information from the government, so we'll be in a position to provide information to the committee within the coming weeks.
Conservative
Raquel Dancho Conservative Kildonan—St. Paul, MB
Thank you.
I believe Mr. Falk has a question, as well.
Conservative
Ted Falk Conservative Provencher, MB
Thank you, Raquel.
As a follow-up question, does the 2% of defence spending that you've included in your $68-billion projected deficit include additional things like Coast Guard expenditures now?
Senior Advisor, Office of the Parliamentary Budget Officer
For this year, I don't think it does. The thing we need to understand is that Coast Guard expenditures were already included under the NATO definition of expenditures. When they're saying $62 billion for this year, 2% of GDP, that already includes spending from other government departments, including the Canadian Coast Guard.
The Canadian Coast Guard has moved under National Defence. I'm speculating at this point, but I think that means that some of the administrative costs, some of the civilian areas of CCG would be included now in the definition because, under the NATO definition of your defence ministry, everything counts as far as civilians are concerned.
I suspect that adding CCG will increase, just by virtue of accounting, defence spending. It shouldn't be part of that figure, though, because those figures were released before CCG....
Conservative
Ted Falk Conservative Provencher, MB
Is that something your department will be monitoring or auditing?