Canada's next defence fight won’t be over spending. It’ll be over trust

If there's i catch phrase to amount up the quandary veneer Canada and other allies post-NATO summit, it might very well be: Show me the money.

It may be cliché. It may be somewhat worn out — after all, it's a pop reference to the 1996 movie Jerry Maguire. But it probably best captures a stirring public sentiment. 

Britain found out the hard way recently that being able to account for an avalanche of money going to defence and security is a live, visceral political and policy issue that is capable of causing damage and casualties.

And it makes one wonder whether anyone in the Carney government has cast a wary eye toward the implosion of British soon-to-be ex-prime minister Keir Starmer — a seemingly swift, ignominious end sparked by a crisis over how to pay for higher defence spending.

If you talk to European diplomats, it's also fair to say that there has been a lot of muted angst in some allied capitals about the fiscal lift that will be needed to construct the road to NATO's new five per cent investment target.

To be fair, Canada and the United Kingdom are in two different economic and fiscal places. Carney's government has more space and capacity to borrow, while Starmer has little and is weighed down by more politically volatile state obligations.

Britain’s political turmoil over military spending wasn’t really about tanks, warships or fighter jets. It was about the credibility of the plan to buy those things without bleeding the balance sheet elsewhere in government.

Ministers promised to rebuild the armed forces, then fought over how to pay for it. And when the numbers didn't add up to a credible plan, the defence secretary resigned.

NATO summit kicks off with military rearmament talks

The spark that lit the fuse was the presentation of the U.K. Defence investment plan, which was intended to set the stage for the NATO summit in Ankara on Tuesday, where allies were expected to lay out their plans to get to five per cent.

"There was the need to present something credible on behalf of the U.K. So as to avoid basically getting beaten up at that summit," said Matthew Savill, a former British civil servant and now the director of military sciences at the U.K.-based think-tank the Royal United Services Institute.

The NATO defence spending pledge is broken down into buckets: 3.5 per cent for direct military investment and 1.5 per cent for defence infrastructure. Both have to be achieved by 2035.

Most of the criticism of the U.K. Plan was directed at the military portion, which pledged to hit the target, but the supporting numbers either didn't add up or don't exist.

At best, the U.K. Could hit three per cent "sometime in the next Parliament," Savill said.

Roughly £15 billion was expected to be added to the U.K. Defence budget over the next four years, "which takes us to 2.7% by the end of the decade," he added.

"What that means is, not only is there not a detail on a pathway, I think there is some doubt about whether there is a credible pathway because it requires a fairly significant spike after 2030. I don't think it passes the credibility test."

To reach the NATO target by 2035, Savill estimated, the U.K. Needed to invest an additional £25 billion a year. When it became apparent that wasn't going to happen, a ministerial revolt erupted.

John Healey resigned as defence secretary last month over what was described as a spending stalemate, and the row set off a wider cascade of departures from Starmer’s cabinet and eventually claimed the prime minister.

U.K. Ministers have a long, colourful history of resigning over points of principle. The same can't be said in Canada.

Unlike Starmer, Carney's government is not in a credibility crisis — at the moment. That's because beyond the high-level, eye-popping numbers, it has kept a tight lid on the specific figures and estimates.

Last year's federal budget proposed an $81.8-billion investment in the defence department, with only $17.9 billion earmarked for core military capabilities. The rest went to pay increases, building northern bases and improving cyberware infrastructure, among other things. 

Over the next decade, there's a pledge to inject $540 billion into defence. It is at that point where credibility begins to be tested. 

In a departure from tradition last fall, the federal budget did not lay out a five-year defence spending projection, and the Department of National Defence has steadfastly refused to release supporting year-by-year information.

People can't argue and critics can't lambaste you if they don't have the numbers.  

The stakes have only increased in the last few weeks, with Canada committing to opening negotiations with contractors to spend tens of billions of dollars on new submarines and early warning surveillance planes.

And with that in mind, Carney made a quiet but significant commitment in Ankara to be more transparent on defence spending in the upcoming fall budget.

"We will lay out in the budget an update with the decisions we're taking, where the fiscal track is, where the defence spending is, how we're spending the one and a half percent on defence related expenditures, resilience expenditures," Carney said at the close of the summit.

"That's the right time to do it."

He also made a point of saying that the commitment is to get to five percent by 2035, "so it's nine years from now" — implying that's still a long way off.

Carney also pointed out that NATO will review the five per cent spending target in 2029 and take into account the "evolving strategic global threat environment."

In his speech announcing the submarines on Monday, the prime minister also predicted Canada would be at four per cent overall (2.5 per cent direct military spend and 1.5 per cent defence infrastructure by the time the review takes place).

That means achieving the last one per cent, which would all be spent directly on the military, won't happen until after 2030. And arguably, it will be the toughest fiscal lift, one that might require hard choices.

Last spring, one of the country's leading economic think-tanks warned that the federal government needs to develop a "credible fiscal plan" to deal with the impact of drastically higher defence spending across the whole of government.

The C.D. Howe Institute proposed a modest increase in the GST, and restraining the growth of non-defence spending and provincial transfers as a practical solution.

The government has quietly ruled out tax increases. At one point during this week's NATO summit, Defence Minister David McGuinty suggested a rising economy would take care of the bill.

"We're growing our economy, we're making major investments in the defense sector to generate more wealth, create more jobs, and provide the resources we need to accomplish this goal," McGuinty said.

"And we're well on our way. We have done things in the last 12 months which I think the Canadian people are very supportive of."

The next political battle in Canada may not be whether to spend more on defence. There now appears to be broad consensus across the major parties that spending must increase.

The battle may instead be over whether Canadians can clearly see where hundreds of billions of dollars are actually going.

And like the U.K., that's where fiscal and political credibility will be tested.

Senior reporter, defence and security

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