Question Period Note: Spending Reductions and Lapsed Funding

This Government says it is committed to defence and the Canadian Armed Forces yet is asking the Department of National Defence to cut its budget by $1 billion. How does that make sense?

• Budget 2023 committed to reducing government spending by more than $15 billion—while ensuring the services and direct supports that Canadians rely on.
• As one of the largest federal departments, National Defence has an important role to play in ensuring effective and efficient government operations to deliver the best results for Canadians.
• National Defence will continue to ensure that the spending in our budget is directed toward top defence and government priorities.
• This includes increasing military capabilities and supporting our people and their families.
• In fact, Supplementary Estimates B includes $583 million in new funding for compensation and benefits for the Canadian Armed Forces.
• The Estimates also allocate an additional $500 million dollars in continued military aid to Ukraine.
• We are closely looking at reducing expenditures related to consulting, other professional services, and executive travel.
• Any potential reductions in spending are being considered carefully, and minimizing the impact on military readiness has to be a driving force behind the decision.

If Pressed on Lapsed Funding:

• National Defence manages a large budget with major equipment and construction initiatives that need funding over many years.
• As such, Defence uses a flexible funding model to ensure that projects get the money they need when they need it.
• This means that money can be re-allocated to support priority projects and initiatives within a given year or moved forward to support needs in future years.
• For example, last fiscal year, we used $91.5 million in previously lapsed funding for the in-service support of maritime helicopters and Arctic and Offshore Patrol ships.
• We will continue to direct committed funding when needed, to support our people, deliver on operations, and undertake major equipment and construction initiatives.

Spending Reductions

• Early efforts are underway to reduce National Defence’s spending. Reductions related to operating expenditures will be phased in over three years and are not expected to result in job losses outside of normal attrition, or reallocation, ensuring that National Defence’s work is focused on high-priority initiatives.
• On November 9, 2023, Treasury Board Secretariat announced that, as part of Supplementary Estimates B, $211.1 million (0.76%) of the National Defence budget would be frozen to reflect expected reductions in spending on consulting, other professional services, and executive travel.

• Similarly, reductions identified related to professional services and travel will have no impact on employment levels.

  Lapsed Funding

• National Defence introduced a flexible funding model in 2017 to re-allocate lapsed funds to support emerging priorities or future needs.

• This flexibility facilitates the delivery of major projects which require multi-year funding.
• Despite sound long-term planning, most defence procurement projects do not advance exactly as planned—some progress faster, others slower, for a variety of operational, logistical, and program reasons.

• To mitigate lapses in funding authorized by Parliament, National Defence is taking the following actions:

  • Improving its capital funding forecast to ensure that the Department does not request more funding authorities from Parliament than required;
  • Funding new projects from surplus in-year funding rather than requesting additional funding from Parliament;
  • Requesting funding for additional military deployments later in the process to ensure only the required funding authorities are requested (to prevent operating lapse); and
  • Monitoring forecasted exchange rates to better forecast their impact on funding estimates (to mitigate grants and contributions lapse).
    

    Parliamentary Budget Officer

• According to a Parliamentary Budget Officer (PBO) report – Planned Capital Spending Under Strong, Secure, Engaged – Canada’s Defence Policy: 2022 Update – from 2017-18 to 2020-21, there was a cumulative shortfall of almost $10 billion between what National Defence spent on capital and what was originally planned under Strong, Secure, Engaged (SSE).

• Of note, at the time of the PBO’s report (March 2022), National Defence was navigating the impacts of COVID-19 on supply chains.
• Given the complexity of the projects in question, National Defence adjusts spending as project schedules and timelines are refined and lessons are learned.
• As National Defence continues to advance and deliver on all SSE projects, flexibility in our funding model will in fact allow us to redistribute funds effectively."

Quick Facts

• Budget 2023 announced a goal of saving $7.1-billion over five years through a 15-per-cent cut to discretionary spending on consulting, professional services and travel over five years.
• The Budget also announced a planned phase-in of a 3-per-cent spending cut by departments and agencies by 2026-27, with a goal of saving $7-billion over four years.
• Of the $2.5B in lapsed funding in 2021-2022, $2.27B was made available to National Defence for future years. This included:
  • $1.1M for adjustments to Vote 1 and Vote 5 spending on capital equipment and infrastructure;
  • $787.6M in Carry Forward (operating expenditures);
  • $209.6M for the Heyder-Beattie Class Action settlement;
  • $91.5M for in-service support for maritime helicopters and AOPS; and,
  • $17.7M in proceeds from the disposal of surplus Crown assets.