Mr. Chair, members of the standing committee, thank you very much for having me here today. It's kind of nice not to be in the committee of the whole, although I kind of miss that too. We had such a bonding experience for all of us during those four hours.
I appreciate the opportunity for me to present on the main estimates for national defence for the fiscal year 2018–19. I'm very pleased to appear before you in the company of my deputy minister, Jody Thomas; Shelly Bruce, the acting chief of the Communications Security Establishment; Rear-Admiral Darren Hawco, who is the acting vice chief of the defence staff; and senior members of my defence team who you see here today.
In just over a week, we will celebrate the anniversary of the launch of our new defence policy, “Strong, Secure, Engaged”, SSE. The policy was not only a road map for the next 20 years, but it was a commitment to do defence differently, a commitment to move toward a mindset of investing in our armed forces. Through SSE, we have committed to increasing the annual defence spending to $32 billion over the next 10 years, an increase of over 70%.
In one year's time, we have accomplished quite a bit and we are very proud of that and very proud of the team that has accomplished this.
Today I will detail some of the most significant accomplishments in line with our main estimates. In SSE, we said that care for Canadian Armed Forces personnel would be our primary focus. We said we would offer enhanced tax relief for Canadian Armed Forces members on deployed international operations. We have done that. We said we would launch a suicide prevention strategy with Veterans Affairs. We did that. We promised to integrate gender-based analysis plus into our activities, and that has happened. We announced $6 million in new annual funding for the military family resource centres, and that has been delivered. We said we would appoint a diversity champion and implement a new charter for the sexual misconduct response centre. This also has been done. We said we would further modernize the military justice system. We have tabled Bill C-77, which introduces a declaration of victims' rights and will make the overall system more efficient.
On innovation, we promised to introduce the IDEaS program to seek out the best defence and security ideas across the country. That has been done.
On procurement, we said we would give the military what it needs to do the important work. That is well under way. We said we would explore an interim fighter capability now. We are examining the acquisition of 18 Australian F-18s. We said we would also launch an open competition for the future fighter, and that has been done. We also have a new fleet of 16 Airbus C-295s for search and rescue. The first one is scheduled to be delivered at the end of 2019. For the navy, we are acquiring a fleet of five to six Arctic patrol ships, the first of which is expected next year. We are hiring more people into the materiel group to help deliver on these and other procurement projects.
In many ways, the successful implementation of our policy so far is due to the way we manage our cash flow and support a flexible funding model. In last year's main and supplementary estimates, we requested $20.97 billion. For the second year in a row, we will have no lapsed funding. This has not been done at DND since the early 2000s. Instead, we will be carrying over $677 million. This is done for a very good reason: the department cannot reduce this further without taking the chance of overspending its appropriation at the end of the year.
A small, unplanned change in forecast may make such a difference. For example, a one-cent fluctuation in the U.S. exchange rate costs us approximately $16 million. All of this reflects better forecasting for capital investments and other improved financial management practices. In addition to reducing the discrepancies between forecasted and actual spending, the department only requests funding it knows it can spend. For instance, we planned to bring in $6 billion last year for capital investments, but ended up requesting just $4 billion. Here's why: about 30% of the funds were unspent because we were able to cut costs through better contracts and unused risk mitigation strategy, which is a good thing.
For example, in some cases we put aside funding to pay for intellectual property, but this expense did not materialize over the first year of the projects, and 27% of the unspent funds were the result of our own internal processes and the additional time required to analyze options for some of the projects. We will continue to review our project management process to find greater efficiencies.
Another 42% of the unspent money is related to delays in delivering goods and services by industry. Simply put, we will not pay for non-performance. We take this extremely seriously. This is why we are introducing new initiatives to increase our collaboration with industry and help reduce such delays.
Other changes to our financial management have also helped us to get to where we are today. Our shift to the accrual basis of accounting enables better, longer-term planning of defence capabilities over the next 20-year period. Because our funding model is flexible, we are not forced to spend money before it is the right time to do so. This strategy to request funds only when they are needed offers greater transparency to parliamentarians and to Canadians.
Also in the vein of openness and transparency is our plan to release our first defence investment plan publicly. This will be done very shortly. This publication will ensure that Canadians and the defence industry can see where we will be making capital investments so they can engage with us accordingly. In fact, I look forward to speaking about the plan with industry professionals tomorrow at CANSEC.
So far, I have focused on the work that we are doing to support the women and men of the Canadian Armed Forces, but I would be remiss if I did not take a moment to reflect upon what they have accomplished this past year.
At home, we have performed life-saving evacuations of Canadians at risk from wildfires and offered critical assistance to flood relief efforts in Ontario, New Brunswick, and British Columbia.
Abroad, about 1,900 personnel are currently deployed on 18 active international operations, including in Latvia, Iraq, and Ukraine. As you know, we will deploy an air task force to Mali as part of our commitment to peace support operations.
So, Mr. Chair, all of this brings us to the funds we are requesting under these main estimates. We have achieved tremendous momentum through good work in the last year. The task at hand is to build upon that momentum, continue supporting our forces, and serve Canadians. For that, we are requesting $20.38 billion. That is $1.7 billion more than last year, or a 9.2% increase.
Within this, $1 billion is for operating expenses, $658 million is for capital expenditures, $12 million is for grants and contributions, and $9.2 million is for statutory allocations.
The difference between the $20.38 billion in the main estimates and the $21 billion that appears for the fiscal year in SSE will be covered by requests made through the supplementary estimates process. Those costs relate mostly to operations and capital projects.
We recognize how complex the defence budget is, so our CFO and I will be happy to walk you through any of the budgeting in detail so that we can provide further clarity.
Let me assure you that we remain on track to implement our defence policy over the next 20 years.
I am also requesting $624.9 million for the Communications Security Establishment. That is roughly $28.9 million more than in last year's main estimates. These funds will help maintain the security of our IT systems while ensuring that the sensitive information Canadians entrust to government is protected.
Mr. Chair, before I close, I would like to take a moment to thank all the parliamentarians for the tremendous work that all of you have done, and on that note, I'll be happy to take any of your questions.