National Defence Committee on Oct. 26th, 2023

[The Chair, Liberal, John McKay]

I call this meeting to order.

We have with us the Parliamentary Budget Officer today, who is quite well known to a number of us, along with Mr. Penney and Mr. Solomon.

Welcome to the committee. You have provided us with a fairly provocative report. Maybe it's not provocative. I don't know. Maybe it'll be very simple.

I thought that instead of the usual five minutes we give to a witness, and in light of the fact that we have you for a couple of hours, it would be useful if we took the first 10 minutes and had you go through the report and explain it. Then we'll go to our usual rounds of questions.

With that, I'll ask you to present in the fashion you see fit. Thank you, sir.

[Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Good afternoon. Thank you for inviting us to appear before you today.

As you mentioned, Mr. Chair—or maybe you didn't mention it—I am joined by Christopher Penney, adviser-analyst, and Binyam Solomon, special adviser, on the report you are considering today.

In accordance with the PBO's legislative mandate to provide impartial and independent analysis to help parliamentarians fulfill their constitutional role, which consists of holding the government accountable, my office published a report in September entitled “A Force Structure Model of Canada’s Military: Costs and Personnel”. I didn't think at the time that it would be provocative, but if it is provocative, so be it.

First, I'd like to explain why we have produced this report.

The government provides a range of analytical and reporting frameworks, such as the public accounts and the main estimates, which offer valuable insights into past and projected expenditures. The departmental results framework, or DRF—or even “derf”, for those who are more intimate with it—takes this a step further by associating spending with measurable goals and effects.

However, while the DRF establishes a relationship between expenditures and the strategic outcomes that are served, it combines results across multiple military branches with intermediate outputs, such as expenditures on training and infrastructure. The DRF, therefore, does not enable the assessment of recurring operating expenditures on individual military capabilities such as armoured battalions or naval surface combatants, for example.

Our force structure model fills this gap by providing an overview of the recurring annual operating expenditures for Canada's military capabilities.

Our model consists of an independent estimate of these operating expenditures for 21 military capabilities identified in every branch of the Canadian Armed Forces.

We've divided the costs into three categories—direct and indirect costs, and overhead—to give us a better understanding of the percentage of expenditures required to use, support and maintain a specific military capability in relation to those that are essential to the combined forces, but which have no independent military impact as such.

The model also includes estimates of the personnel strength associated with each capability, in terms of direct costs, indirect costs, and overhead. That allows for combining the estimated operating cost analysis with the staff levels for each capability.

For example, in the tool we published on our website, you can increase or reduce the capability of, let's say, the naval air forces and determine which expenditures are directly related to the naval forces and which are indirect, such as support vessels, and overhead, which are typically associated with headquarters. That makes it possible to determine the impact of an increase or decrease in direct capacity on overall costs, and personnel.

As you may know, the model was published on our website, and it is available to the public. We created an interactive tool that allows users to analyze portfolio compromises for all military capabilities, by displaying the changes in recurrent costs and personnel strength resulting from the changes in the structure of the forces specified by the user. It's the first publicly available model of this kind in Canada, and I can tell you that it's very popular.

Thank you, Mr. Chair. That concludes my opening address.

I'd be happy to field any questions you may have.

[The Chair, Liberal, John McKay]

That was well below 10 minutes.

Let's go to our first round. I think it's Mr. Bezan for six minutes.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Thank you, Mr. Chair.

I want to thank the Office of the Parliamentary Budget Officer for being here today. I do appreciate all the hard work that the PBO does in keeping us, as parliamentarians, informed. I appreciate the report that you just filed.

We have lapsed spending. We just saw that in the public accounts that were tabled this week. There was another $1.5 billion down, and $2.5 billion before that. Both of those big lapsed spending amounts—$4 billion-plus—were under Minister Anand. Now, we also know, as we've heard in testimony here in the past couple of weeks, about the recruitment crisis that we have: 16,000 troops short and 10,000 undertrained and undeployable. The Liberal government has undermined the Canadian Armed Forces.

If we increase numbers and get money back toward where it's supposed to be, even if the government had just hit their budget numbers before they take this $1 billion cut out of this current year, where would, in your mind, the ratio be, tooth to tail?

You're talking about a third right now of actual direct military effect. If budgets were met, if troop strength was up, would that ratio change significantly?

[Yves Giroux]

It would depend on where the money would be spent. If you're talking about a billion dollars or a billion and half dollars per year, I don't think it would change the ratio significantly. It would move it a bit but not that much.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Okay.

I found it interesting that the ratio on the Canadian Army, the tooth-to-tail ratio, is worse than it is for navy or air force. To me, it's counterintuitive. I would expect that it would be more expensive for direct military effect to put fighter jets in the air and ships to sea than it would be to put soldiers out in the field.

Why is it that we have so much more overhead costs and indirect costs tied to the Canadian Armed Forces in the army?

[Christopher Penney, Advisor-Analyst, Office of the Parliamentary Budget Officer]

For the Canadian Army, we have a greater quantity of what we call indirect capabilities, for instance, armed reconnaissance regiments, combat engineers, engineering support regiments and such, which are, of course—

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

You don't consider that direct military—

[Christopher Penney]

These are indirect. They are deployed as part of a force mix.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Have you ever seen combat engineers and how they operate? They go right into harm's way. They are part of the fight.

[Christopher Penney]

There's no reason to disagree with what you're saying. We follow the convention that was set forth in the strategic cost model, which was DND's own framework, dating back to over a decade now. Also, we follow the conventions established by the Congressional Budget Office.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

The Congressional Budget Office has provided this type of modelling, which exists down in the States, and we're just adapting that and applying it to the Canadian Armed Forces.

[Christopher Penney]

In so many words....

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Okay.

I noticed that you put Canadian Rangers as their own military effect, I guess, their own capability.

Did you guys do an analysis of reserve forces versus regular forces?

[Christopher Penney]

There is a breakdown within the model. It's not displayed as part of the tool. As you can imagine, there are only so many axes by which we can offer that level of detail and that level of granularity. I would say that the reserve forces are fully accounted within the model.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Okay.

On their tooth-to-tail ratio, how does that compare, especially since most of our reserve forces are army reserves? There are, of course, navy reserve units as well. On the army reserve units, what would that tooth-to-tail ratio be versus the Canadian Army? Would it be worse or better?

[Christopher Penney]

I can certainly say that, of the reserve personnel, many of them are attributed to direct. I don't have a breakdown, however, of the reserves, whether they are direct or indirect. I think Mr. Solomon might have something to add.

[Binyam Solomon, Special Advisor, Office of the Parliamentary Budget Officer]

Yes. As you pointed out, the army basically eats up about two-thirds of the reserve force we have. A good chunk of the remaining is the navy, followed by the air force.

The reserve forces are essentially treated as basically providing support to the direct elements. If we were to integrate them as a part of the direct, you might get the ratio higher, but, in order to remain consistent in our modelling strategy to match with both the Congressional Budget Office and past DND experience, we left them out. Your analysis would be pretty much correct if we decided to include them as part of the direct.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

When we look at tooth-to-tail ratios, Canada's versus our allies', did you guys do an analysis of where we stack up?

[Christopher Penney]

I believe the Congressional Budget Office figures show the tooth-to-tail proportion at 41%, so more than one-third. Looking at the U.K., the most recent estimate I can find is from the middle part of the last decade, but it's also exactly 31%.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Where is the sweet spot then? If we're going to reduce the tail and get more teeth, get a bigger bite in our fighting capabilities, where is the sweet spot? Where do we make investments—air force, navy, army?

[Binyam Solomon]

It's the way—

[The Chair, Liberal, John McKay]

Mr. Bezan has asked an extraordinarily complicated question right at the last minute, literally in the last seconds. I'm going to let that go, because we do have these folks for two hours. I'm not going to be hard-nosed, but I don't want to get abused if I tell you that I'm not going to be as hard-nosed as I usually am.

I think this is an important question, and I'm going to let it go even though Mr. Bezan is way past his time.

[Binyam Solomon]

In terms of the tooth-to-tail ratio, you have to understand that people sometimes use the analogy of an arrow. Sometimes you need bigger support in the back in order to make sure that your fighting edge is quite capable. You need to have a certain amount of overhead and indirect support.

The tooth-to-tail ratio is an important way of looking at how much is being put on the overhead, but sometimes some capabilities actually require a good amount of support as an overhead. Imagine, for example, even within the navy, some of the air force capabilities have to be included, and the air force would come with their own set of supporting elements. Sometimes the tail needs to be bigger.

We don't usually say that there's a fixed goal to achieve, but we always have to make sure that there's a reasonable amount of overhead to go with it.

[The Chair, Liberal, John McKay]

Thank you, Mr. Bezan. You should be thanking me, actually.

Madame Lalonde, six minutes, please.