National Defence Committee on June 9th, 2023

[Lindsay Mathyssen, NDP, London—Fanshawe, ON]

I want to ask about this as well: When you're analyzing these major procurement projects, how do you integrate social costs? You've talked about the cost of climate change and the impact of that. When we're analyzing these major procurement and equipment purchases, how do we keep up with that social cost of climate change, environmental policy and different lenses, such as an indigenous lens of procurement?

[Yves Giroux]

That's a question that is very.... It's something that comes up every now and then.

We're a budget office, so we tend to go with dollars and cents, with numbers and the cost of specific proposals. Even though there are social impacts and environmental impacts to many of the government's policy proposals, we don't tend to look at these systematically. In the case of defence procurement, we don't look at these other aspects, generally speaking. Similarly, we don't look at the benefits for Canada to having warships or fighter jets, because these would be difficult to quantify.

[The Chair, Liberal, John McKay]

Thank you, Ms. Mathyssen.

We have Ms. Gallant for five minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

With respect to the NATO 2% of GDP spending, the Wales commitment, apart from the obvious—the equipment, the fuel, the training, deployment, base infrastructure—what other things are included in this calculation that would be different from what had been done previously?

[Yves Giroux]

That's an interesting question, because I myself looked at that when the issue resurfaced several months ago. I was a bit surprised to hear that. I should not have been surprised, but there are elements other than pure DND spending.

For example, there are veterans pensions and benefits—some benefits are included. There are some expenditures by the RCMP—not all, but a small fraction. There is spending by the Canadian Coast Guard, because in many countries the coast guard is considered a paramilitary force, so Canada is allowed, under NATO rules, to include expenditures by the Coast Guard, as well as some transfer payments to NATO and other international organizations.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Were those changes made over the last 10 years, or had those always been there?

[Yves Giroux]

No, they have not always been there. They were made in 2014-15.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

The word is that 2% will become the minimum, as opposed to the aspirational 2%, which Canada has taken it to be. Given the modifications, it made it look like our percentage of GDP has been increased.

[Yves Giroux]

Yes. As a result of including these additional expenditures, which is consistent across NATO countries—it's not unique to Canada, so it's a NATO definition—the proportion of GDP going to defence expenditures has gone up, and is expected to go up, but mostly as a result of increased capital expenditures at DND. It will still fall short of the 2% target, or minimum, depending on the wording, depending on whom you talk to, and that results in a shortfall of between $13 billion and $18 billion.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

There's often the concern that the increase in defence spending goes towards salaries, as opposed to capital projects. What percentage of the budget currently goes towards the capital projects specifically?

[Christopher Penney]

It should be about 30% at this point.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Given Canada's slow ability to increase military capabilities, are there currently any ways to require that they maintain a minimum 20% investment in capital projects?

[Yves Giroux]

It's a target also under NATO, but it's difficult to reach that level with the current constraints, especially when it comes to delivering on military projects. Over time, with the expected increase in capital spending, that goal could be attained over the next couple of years, assuming there are no further delays or issues with military procurement.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Earlier you mentioned that a single-point responsibility, both at the ministerial and the senior management level, is required to be more efficient in our procurement.

What other countries seem to get procurement right and efficiently? Apart from the difference in leadership, what are they doing that perhaps we could be emulating?

[Yves Giroux]

I'm a budget guy, so I've done reports on Canada's military, and I've looked at numbers for other countries, but I am not a military procurement specialist per se, especially not on the international scene.

Maybe the eminent Chris has more knowledge and information than I do.

[Christopher Penney]

Certainly.

The only two I would point out were the two you pointed out earlier. That would be Japan and South Korea. They seem to be doing quite well. I believe it was recently announced in Poland that they've acquired, or entered into an agreement to acquire, new tanks and other materiel from South Korea, and they're to be delivered within six months. These are top-of-the-line, next-generation, quality platforms.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Are there different budgetary procedures that we could follow, better planning procedures, in order to get the equipment into the hands of the military more quickly?

[Yves Giroux]

I'm not sure that the budget process or the funding process is itself at fault, because there's already a predictable budget track for capital expenditures under “Strong, Secure, Engaged”. Even before that, there was a capital spending envelope at the Department of National Defence that was highly predictable, and the government provided flexibility at DND to re-profile it according to its needs.

In my opinion, having worked on budgets for decades now, the budget process and the funding process itself is not the main element. There's already significant or sufficient, I think, predictability in the DND capital spending, and I don't think that is the main issue.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

With respect to the length of time it takes to get from approval, for example, to the actual cutting of the steel, be it for ships, I understand there's quite a lengthy delay, and a portion of that is with Treasury Board.

Is there anything that can be done to speed that up? Are all those procedures, checks and balances necessary to get it out of the door and into hands more quickly?

[Yves Giroux]

As I said, I think having a single point of contact or a single point of accountability would be the ideal scenario where you have fewer and ideally one agency, department or organization responsible for procurement, including decisions.

It doesn't mean that we have to forget about the oversight of Treasury Board, but the Treasury Board Secretariat is not populated with military procurement specialists, so their role is essentially to ensure that due process has been followed.

If we can streamline the process and reduce the number of agencies and organizations involved in the military procurement process, it will, indeed, I think, facilitate the work of the Treasury Board Secretariat and Treasury Board ministers in ensuring that due process has been followed.

[The Chair, Liberal, John McKay]

Thank you, Ms. Gallant.

Ms. O'Connell, you have five minutes.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Thank you both for being here today.

I want to follow up on the 2% spending piece, because I wasn't quite sure. I want clarity.

In your testimony, you mentioned that in 2014-15, the change came in terms of including parts of the Coast Guard and veterans' salaries.

Is that what I understood? Is that when Canada started to include those things in the 2% spending?

[Christopher Penney]

That's correct.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

That was obviously a previous government changing the ability...or bringing in other departments to increase to the 2%.

There has been lots of testimony and debate around reaching the 2%, but we also saw that, previous to our government, we were not even at 1%.

Do you have the dates when they started to increase, let's say, going back to 2010?

[Christopher Penney]

I don't have it in front of me right now going back to 2010, but from 2014, we were at 1%, and that's when the change occurred in the definition.

I should note that this is a NATO definition. Obviously, it comes from them. It had been the case that you could include these other cost categories for many years before that. It's just that Canada started defining it that way in 2015.