Evidence of meeting #64 for National Defence in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was billion.
A recording is available from Parliament.
Conservative
James Bezan Conservative Selkirk—Interlake—Eastman, MB
I'll go to my final question.
If we are talking about creating a sovereign capability within our defence industrial base, the policy should be, then, to buy Canadian whenever possible, and only off the shelf when we don't have an affordable Canadian option. Would that be it, in your estimation, based on all the work you guys have done over the years on defence procurement?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That seems to already be the case, to a certain extent. That's a policy decision that's outside my realm, but that is one possible approach.
Liberal
Liberal
Bryan May Liberal Cambridge, ON
Thank you, Chair.
A PBO report on progress under Canada's defence policy “Strong, Secure, Engaged” noted delays in capital spending and a shift in expenditure to later years. This shift is expected to mean that project costs will be higher than initially projected. At the same time, a recent DND internal audit noted a large portion of unfilled positions for procurement professionals and noted competition with the private sector as a main driver.
In your opinion, sir, could spending more on ensuring that National Defence has the capacity it needs actually save us money in the long term by helping to avoid project delays that lead to these cost increases?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Well, the number of military procurement personnel at DND and PSPC is certainly one factor explaining the delay in procuring some major equipment, but it's not the only one. Increasing the number of procurement personnel is probably necessary, I think, but it may not be sufficient in ensuring that the pieces of equipment that DND needs for its forces would be procured on time and within budget.
It's necessary but probably not sufficient. There are other issues at play, such as the capacity in Canada for domestic production, for example.
Liberal
Bryan May Liberal Cambridge, ON
Thank you.
The PBO conducted an analysis on the industrial and technological benefits policy last year. Could you go through a little bit more of what the main findings of that analysis were?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We found there were some issues with the ITB. We looked at a limited period of time. The ITB was in place since 1986, so we looked at the period that started, if my memory serves me well, in 2015. We found there was about $18 billion in ITB. The majority of these ITBs were to larger corporations. Only less than 20% of ITBs went to small and medium-sized businesses.
We also found that despite the fact there is a multiplier that gives credits between four to nine times the amounts actually spent to the businesses themselves if they spend in categories that are high value, such as post-secondary education and R and D, only 5% or so was effectively spent in these categories. That's despite the fact that they get between four and nine times the value in credit towards meeting their targets in ITB.
That's a very short, high-level summary of the findings on our ITB report.
Liberal
Bloc
Christine Normandin Bloc Saint-Jean, QC
As we are now completing a study on this, I'd like to hear a general comment on cybersecurity, including life cycle analysis. At the Office of the Parliamentary Budget Officer, what challenges result from the fact that this field is evolving at lightning speed and that we are always trailing behind the latest technological breakthroughs?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's not something we've studied in any detail. Unfortunately, I have no significant or relevant comments to make. Sorry.
Liberal
The Chair Liberal John McKay
Thank you for that efficient and excellent question.
Madam Mathyssen, you have one minute.
NDP
Lindsay Mathyssen NDP London—Fanshawe, ON
To conclude, I put forward private member's Bill C-300 to try to get at what we were discussing in terms of the money that is supposed to go into Canadian hands at source and which is finding its way into more of the foreign larger corporate hands.
We talk about the spin-off jobs in my city. In my constituency, there's a very large contractor, but it's the smaller spin-offs....
Is that considered in a lot of these projects within your analysis, and is it just more of the hardware, or were you looking as well at training and education in some of the companies that were doing that work?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Our reports so far have focused on the expected costs of procuring these major pieces of equipment. We have not looked at the spin-offs or the economic benefits or the industrial benefits.
In and of themselves, the major procurement projects we have looked at are massive and they require quite a bit of analysis. Essentially, our capacity to do that analysis sits here to my left. There's some help that we get in the office, but by and large, he's the bulk of our capacity.
Liberal
Conservative
James Bezan Conservative Selkirk—Interlake—Eastman, MB
Let's go back to the issue of looking at where the government has allowed money to lapse. You were saying it's $2 billion just on capital spending this year and there's a $4-billion difference between the departmental plans and the main estimates.
As these numbers continue to reduce overall defence spending, how much is that impacting the numbers you forecasted on Canada meeting the 2%? You already said that over the next five or six years, there's a $75-billion shortfall between 2% GDP and what was planned. Are we now adding in another $10 billion plus on top of that $75 billion?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's clear that when we have a shortfall in capital spending, it likely reduces the ratio and it further takes us away from reaching the 2% NATO target, but it also has another impact. If you don't spend money now and you spend the same amount in the upcoming years, with inflation that is specific to the defence sector, it reduces the absolute value of that money. If you spend $4 billion now versus spending $4 billion in five years, you can buy less gear with the same billions of dollars five years from now due to inflation. It also impacts the capacity of DND to acquire military bases, equipment, barracks and so on.
In the absence of an increase in the overall amount, delaying also has a detrimental impact on the value of what you can buy.
Conservative
James Bezan Conservative Selkirk—Interlake—Eastman, MB
Is defence inflation similar to the Canadian average or is it much higher? How much does that erode the buying power of the Canadian taxpayer? How much more is it going to cost the Canadian taxpayer to get the same kit?
Advisor-Analyst, Office of the Parliamentary Budget Officer
It's actually quite dependent on which type of materiel is being considered. In the case of naval shipbuilding, for instance, you'll see defence inflation rates between 1.2% and 4%. If it's for land vehicles, it's right in line with the economy.
It does vary, but as a general rule, it's a few percentage points higher.
Conservative
James Bezan Conservative Selkirk—Interlake—Eastman, MB
If we're running at 4.2%, or where the inflation is right now, we could expect somewhere between 4% and 6%. Is that what you're saying?
Advisor-Analyst, Office of the Parliamentary Budget Officer
That's correct.
Conservative
James Bezan Conservative Selkirk—Interlake—Eastman, MB
In the F-35 study that you guys are doing right now, are you taking a hard look at what that inflationary cost was from making the decision to purchase 10 years ago versus a purchase now and when the fighter jets are actually procured?
Advisor-Analyst, Office of the Parliamentary Budget Officer
Unfortunately, we won't be considering the difference—or the money lost, I suppose—had we procured sooner. You're right. There is some amount there.
Liberal