It is both about $ and allocation.
Remember that we are a small military and we are a aging one as well. Most of our equipment needs upgrading and replacement and that is for all services. While I agree the replacement/ mods that KevinB is speaking about are the ideal solutions and I personally would love. The C7A2 upgrade will make improvements that we have asked for years for a small cost.(except the Triad mount which is horrid idea and big mistake)
A 16" barrel is the ideal but the current barrel is "adequate" and we have stock to last us another decade or so. We have used in the C7 in the grizzly which is smaller than the LAV3, it was a pain in the *** but we could do it, we have used it in FIBUA etc. There is plan to implement the 16 when we begin to purchase additional stock of barrels but that is a few years away. The Light Infantry program 150 Million per BN may speed this up but I wouldn‘t hold my breath.
If you are using the reasoning that 1 or 2 LAV less, why not buy ammo. You could have the greatest rifle, optics, and acessories in the world but if troops can‘t shoot a rifle, it just looks pretty.
Bottom line I think that there are other items we can allocate money to besides reducing the barrel 4 inchs.