Defence procurement won't be so easy to cut in a time of COVID-19

As governments around the world reassess national security, Ottawa could find it harder to delay plans for new ships, helicopters and fighter jets.

Jeffrey F. Collins

May 22, 2020

A few months into the COVID-19 pandemic, the first signs of impact on Canada's defence procurement plans are showing. The government has been following an ambitious multi-decade blueprint, starting in 2010, to kick-start the domestic shipbuilding sector, but some yards have had to scale back their workforces under public health orders. What this means for the National Shipbuilding Strategy and its more than $85 billion (by my calculations) in ongoing and planned construction of large ships is as yet unclear.

The $19-billion Future Fighter Capability project, designed to replace the four-decade-old CF-18 fighter with 88 new jets, could also be affected. Government officials were adamant until early May that the June submission deadline for bids remained unchanged — before granting a 30-day extension. But with industry and public sector workers largely stuck at home, it is difficult to see how even the new July deadline can be met.

In earlier times of economic strain, Ottawa found defence spending an easy target for cuts. This time could be different, as governments around the world reassess what national security means and how best to achieve it.

Heading into 2020, things were still looking up for the capital spending plans of the Department of National Defence (DND) and the Canadian Armed Forces (CAF). The Trudeau government's 2017 Strong, Secure, Engaged (SSE) defence policy had allocated $108 billion in capital expenditures over a 20-year timeframe, 2017-37.

Then came the pandemic. There were more than a million job losses in March alone, and as of early May, the Parliamentary Budget Office was predicting a $1-trillion debt by 2021. Given the rapid drop in both domestic and global consumer demand, the price collapse in the country's key commodity, oil, and the accompanying decline in the Canadian dollar, the country is now in a recession for an unknown period. If past is prologue and the virus persists without a vaccine for the foreseeable future, the likelihood of the government delaying or cancelling projects or trimming its orders for ships and planes is growing.

When faced with economic pains in the past, federal governments scaled back procurement plans. The staggering debt and deficit in the late 1980s and 1990s led the Brian Mulroney government to drop its ambitious bid to acquire up to a dozen nuclear submarines in 1989, a mere two years after announcing the project in the 1987 defence White Paper. In 1993 the Jean Chrétien government infamously scrapped the contract to replace the 1960s-vintage Sea King helicopter (at a cost of $478 million in penalties). The following year's defence White Paper outlined $15 billion in delays, reductions and cancellations to the DND's procurement budget; this was in addition to large-scale base closures and 20 percent reductions in both CAF regular force personnel and the overall defence budget.

The ostensibly pro-military Stephen Harper Conservatives announced 20-year funding plans, as ambitious as the SSE, in the 2008 Canada First Defence Strategy but deviated from them in the aftermath of the 2008-09 global recession. With a goal of returning to balanced budgets after $47 billion in stimulus spending, the Harper government delayed or cut over $32 billion in planned procurement spending and laid off 400 personnel from DND's procurement branch. Among the casualties was the army's $2.1-billion close-combat vehicle.

There are several reasons why this pattern has repeated itself, but two stand out. First, defence is a tempting target for any government belt-tightening drive, typically accounting for a large share of discretionary federal spending. With most federal money going to individual citizens (employment insurance, pensions, tax benefits) and provinces (health and social transfers), there simply is little fiscal room left outside of defence. To remove money from these politically popular programs is to risk voter resentment and the ire of provincial governments. In short, when past federal governments confronted a choice between cutting tanks and cutting transfers, they cut the tanks.

Second, Canada's geostrategic position has helped. Sitting securely atop North America in alliance with the world's pre-eminent superpower has meant, in the words of a defence minister under Pierre Trudeau, Donald Macdonald, that “there is no obvious level for defence expenditures” in Canada. Meeting the terms of our alliances with the United States and NATO means that Canada has to do its part in securing the northern half of the continent and contributing to military operations overseas, but generally in peacetime Ottawa has a lot of leeway in deciding what to spend on defence, even if allies growl and complain.

Yet it is this same geostrategic position that may lessen the impact of any cuts related to COVID-19. Unlike the Mulroney and Chrétien governments, who made their decisions amid the end of Cold War tensions, or the Harper government, which was withdrawing from the combat mission in Afghanistan, this government must make its choices in an international security environment that is becoming more volatile.

The spread of the virus has amplified trade and military tensions between the world's two superpowers and weakened bonds among European Union member states as they fight to secure personal protective equipment and stop the contagion at their borders. Governments worldwide are now unabashedly protectionist in their efforts to prevent the export of medical equipment and vital materials. As supply chains fray, pressures mount for each country to have a “sovereign” industrial capability, including in defence. In fact, the Trump administration has turned to the 1950 Defense Production Act to direct meatpacking plants to remain open or to restrict the export of health products (three million face masks bound for Canada were held up, then released).

The pandemic is intensifying the Trump administration's skepticism of alliances and international institutions; in late March, there was even discussion of stationing US troops near the Canadian border (the plan was eventually abandoned). Smaller powers like Canada that have traditionally relied on American security guarantees will have to maintain their defence spending, or even increase it, as they try to strengthen old alliances and create new ones. As Timothy Choi, a naval expert at the University of Calgary, has told me, an irony of the pandemic is that it may see the National Shipbuilding Strategy become a “major destination for stimulus spending in times of recession.” Either way, by the time the pandemic subsides, Canadians may yet find out that there is indeed an “obvious level” to defence spending.

This article is part of the The Coronavirus Pandemic: Canada's Response special feature.

Photo: The Halifax-class navy frigate HMCS Fredericton in the waters of Istanbul Strait, Turkey. Shutterstock.com, by Arkeonaval.

https://policyoptions.irpp.org/magazines/may-2020/defence-procurement-wont-be-so-easy-to-cut-in-a-time-of-covid-19/