The Defence Budget [superthread]

[MarkOttawa]

Thanks, Edward.

Mark
Ottawa

 

[McG]

Adjusted for inflation, spending is at the same level it was in 2005.

That would match what we saw on the previous page, and defence spending is its the lowest as a percentage of GDP since before the Second World War.

But I wonder ... inflation adjustments are typically based on consumer inflation.  Defence inflation is typically higher than consumer inflation1.  That tells me that DND and the CAF has even less financial power today than in 2005.


1.  I can find no Canadian reference for defence inflation, but UK numbers for consumer and defence inflation show defence at .7 percent higher per year over the period of 2006 to 2013.

• Defence: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/280003/2011-12-original.pdf
• Consumer:http://www.inflation.eu/inflation-rates/great-britain/historic-inflation/cpi-inflation-great-britain.aspx

 

[MarkOttawa]

Good point, mostly for capital projects I would imagine.  E.g. how far will that $9B for F-35--oops! new fighter--go?  And the $2.6B for JSS and $3.2B for A/OPS?  Not to mention $26B for CSC:
http://vanguardcanada.com/what-is-best-value-for-the-canadian-surface-combatant/

Mark
Ottawa

 

[Edward Campbell]

Calculating inflation is hard enough when we are able to use very, very gross values. It becomes nearly - but not quite - impossible when related to functional areas, like national defence.

We can, however, calculate inflation rates within some sectors, where we have reasonably competitive markets: like the military aircraft marketplace a generation or two ago. (I would suggest that it is absolutely impossible to calculate real costs and prices of 21st century combat aircraft, like the F-35, because government subsidies and officially/government sanctioned uncompetitive behaviors amongst vendors totally distortrs both costs and prices. No one, I suggest, at any level of any government or any corporation has any useful idea about how much an F-35 costs or is worth (in terms of pennies per Lockheed Martin share).) Shipbuilding and even military electronics and some weapon systems are still developed and sold in reasonably competitive markets so we can calculate defence related inflation there.

I doubt the utility of the UK study because it measures a function (defence), which pays a wide range of prices for an equally wide range of products. Some of those prices are 'set' in a reasonable free market and their values can be accepted; others are either 'normal' (food and fuel, for example) and ought not to be included or are directed (Buy British or Buy American programmes) and, therefore, artifially inflated, by policy, and also ought not to be counted. The inflation rates for defence electronics, for example, is remarkably different from that for consumer electronics and it ought to be one of the (handful) of measures that we put before policy makers when we try to describe the fiscal challenges.

The Brits "situated the appreciation" and got a number that was manageable. Those trying to manage defence budgets know it's much, much harder than the Brit study suggests.

 

[Good2Golf]

In our case, you use the Treasury Board provided inflation rates used by all departments.  I have never seen a 'defence-specific' inflation rate provided.  In that 'defence' might effectively have a different aggregate inflation rate that other elements of government business, defence itself is not a homogeneous industry, and would have numerous effective inflation rates dependent on which sector of defence was being assessed.

Just using the national standard rates for all years applicable to the accrual period of the particular capital project would be reasonably accurate, certainly for initial identification and definition phases of a project.

:2c:

Regards
G2G

 

[Edward Campbell]

I am aware of one study, done 30ish years ago, that tried, and failed, to offer a 'defence' inflation factor. It was not accepted beyond DND and some people within DND, including ADM(Mat), himself, had reservations about both the a) the utility of such an 'inflator,' and b) the arithmetic that went into it.

I actually agree with the notion of a defence inflator but I think it is a political matter and I think this government has made a broad political decision which says that defence spending will be restrained until two things happen:

    1. DND come up with a plan that makes good strategic sense. (It is my opinion that no such plan existed after the 1950s ~ the White Papers (1964, 1971, 1987, 1994 and 2009) all papered over/justified a priori political decisions.)

    2. There is a situation which requires Canadian military action.

I think the government of the day made a political decision to accept the full costs of e.g. the C-117s and the CH-147s; they have, yet, to make similar decisions re: F-35s or ships. They will, or will not, as a matter of routine political calculus.

 

[Good2Golf]

:goodpost:

Concur. 

The irony is that It could be considered unreasonable for the Government to expect of Defence anything other than a defence-centric appreciation of the situation, including such inflation factors, bu in all cases, independent of political, regional or other non-defence factors. Defence is often chastised for politicizing issues.  Well...it has arguably been bred into Defence, and indeed other Departments, by the Government itself.  It is disingenuous to form a highly politicized/influenced structure within which DND must work, yet critique DND when, unsurprisingly, characteristics of the solution appear to have political considerations contained within. 

Regards
G2G

 

[GR66]

How do you reconcile a sensible Defence strategy with a government (any party when we're deployed) that is unwilling to properly fund the military?

For example, if the CF were to say we don't need ultra expensive F-35's to perform EVERY air combat task we have, so we'd like a smaller number of them for expeditionary roles and an additional number of a lead-in fighter (for example the KAI FA-50 if we decide to use the T-50 trainer for the F-35s) for domestic duties...and we don't need ALL our ships to be as capable as the proposed CSC, so we'd like 4 of the AD version and a dozen smaller ships similar to a modernized Halifax rather than just being able to afford only 8 CSCs...and not every Maritime Patrol Aircraft needs to be a P-8 equivalent so we'd like a few P-8s and several cheaper but less capable MPAs to support them and cover more area overall than if we only had expensive P-8s...etc, etc, etc.

That might actually be a reasonable strategy for the CF to pursue but if they suggest that do they not run the risk of JUST getting lead-in fighters, Halifax replacements and Dash-8 MPAs and NO F-35s, CSCs or P-8s because they're not needed for EVERY role required by the CF.  The politicians hold the purse strings and when the CF isn't in the spotlight it's easier to cut the top end equipment/capabilities and just fund the lower 80% capabilities because those platforms are cheaper.  Maybe that's why the CF leadership appears to fixate on the "gold standard" equipment (in ever smaller quantities) at the expense of getting usable tools into the hands of the troops.

Both approaches have the same end effect - a less capable CF.  Either through having high-end equipment but in quantities so small that we have difficulty finding enough to deploy, or by having 2nd-tier equipment that limits our ability to perform all the tasks asked of our military when it is deployed.

Short of some type of national discussion about the role of the CF and agreement to provide the funds to properly support what we're asking the military to do I don't know what the solution to this problem might be.

 

[McG]

Michael Byers seems to suggest we have entered the even darker decade of darkness.

The Harper Plan for unilateral Canadian disarmament
Michael Byers
National Post
08 July 2014

Stephen Harper could find himself in unexpected company this autumn, as a contender for the Nobel Peace Prize.

Other Canadians have found themselves in this position: Lester Pearson became a Nobel laureate in 1957 for pioneering UN peacekeeping, an activity for which Roméo Dallaire must later have come close to winning the prize. Stephen Lewis would have been shortlisted for his work on HIV/AIDS, as would have Lloyd Axworthy for the Landmines Convention.

Unexpected company, indeed, for this Conservative prime minister. But consider this: Despite his tough talk about supporting the troops, Stephen Harper has reduced defence spending to just 1% of GDP — the lowest level in Canadian history.

For decades, Canada’s level of defence spending was comparable to that of Denmark, Germany, the Netherlands and Norway (all currently at 1.4%). After the Cold War ended, Jean Chrétien and Paul Martin reduced defence spending to 1.2% of GDP — leading to what General Rick Hillier called a “decade of darkness.” The Afghanistan mission necessitated an increase, with spending returning to 1.4% by 2009.

But then Harper cut deep: At 1% of GDP, Canada’s new defence spending peers are Belgium, Latvia and Slovakia.

Two factors account for the decrease.

First, Harper is focused on delivering a surplus in 2015 that will enable him to cut taxes before the election. Deep spending reductions are therefore needed and, with no significant missions underway or anticipated, the military is an easy target.

Last year, reduced maintenance budgets forced the Army to park many of its trucks, while the Navy tied up half of its patrol vessels. The Air Force cut back on maintenance of its CF-18 fighter jets, with possible safety consequences for its pilots. This year, the PM clawed back an additional $3.1-billion in defence spending.

Second, the Harper government has failed to complete a number of major defence procurement projects and, by so doing, kept them off the budget. For it is the year of spending, not the year of announcing or contracting, which determines when expenditures first show up on the balance sheet.

The delayed procurements have left the military in a weakened state.

In 2006, the Harper government announced the replacement of the Navy’s 45 year-old supply ships. Eight years later, no construction contract has been signed. The new ships are now expected in 2020, with the $2.6-billion expense postponed until then. In the same year, the government promised 1,300 armoured trucks to replace a fleet the Army warned was at risk of “catastrophic failure.” To date, no manufacturer has been selected and $800-million remains unspent.

New search-and-rescue planes were also promised in 2006, to replace a half-century old fleet. This procurement, too, has suffered repeated delays, leaving $1.9-billion hanging. Also in 2006, the government launched a plan to sole-source unmanned aerial vehicles. No contract has been signed and $1-billion remains unspent.

The following year, Arctic/Offshore Patrol Ships were promised. Seven years later, no construction contract has been signed and $3.1-billion remains off the ledger. In 2010, the Harper government announced that F-35 fighter jets would be purchased to replace the CF-18s, at a cost of $9-billion. No contract was signed and the decision was later suspended, after the Auditor General estimated a life-cycle cost of $45-billion for the fleet.

In 2011, the government announced that the Navy’s 44 year-old destroyers would be replaced. No contract has been signed, delivery has slipped to at least 2020, and another $5.2-billion has been deferred. Then, in 2013, the government cancelled a $2-billion purchase of Close Combat Vehicles for the Army.

Finally, there is the never-ending effort to replace the Sea King helicopters. The Martin government signed a contract in 2004, with deliveries promised for 2009. Under Harper, the delivery date has slipped to 2018, with nearly $1.8-billion still to be paid.

It is possible that Harper intends to carry through with these procurements, after pausing to create the temporary illusion of a surplus. If so, he is setting his successor up for a headache. For there is, in fact, a substantial deficit — resulting from over-$25 billion in deferred acquisition costs for military equipment.

Exacerbating matters, inflation rates are higher in defence procurement than in the economy in general, which means that every deferred cost leads to higher final costs and, with that, pressure for reduced orders and lowered capability requirements. In other words, failing to recapitalize the military in a timely manner has created a procurement death spiral, as rusting-out equipment becomes increasingly expensive to replace.

From the perspective of the Nobel Peace Prize Committee in faraway Oslo, Canada is engaged in deep-reaching process of unilateral disarmament. For this reason, Stephen Harper could soon find himself elevated to Pearsonian heights. The prospect of winning the Nobel Peace Prize, however, may be the cause of consternation rather than celebration for Canada’s tough-talking PM.

http://ww2.nationalpost.com/m/wp/blog.html?b=fullcomment.nationalpost.com/2014/07/08/michael-byers-the-harper-plan-for-unilateral-canadian-disarmament

 

[MarkOttawa]

Serious budgetary sausage-making, at Embassy :

‘Good luck, have the Scotch ready’: Defence Department struggled to meet [TBS] planning expectations into 2013
http://www.embassynews.ca/news/2014/07/23/good-luck-have-the-scotch-ready-defence-department-struggled-to-meet-planning-expectations-into-2013/45823

Mark
Ottawa

 

[Monsoon]

Serious budgetary sausage-making, at Embassy :

‘Good luck, have the Scotch ready’: Defence Department struggled to meet [TBS] planning expectations into 2013
http://www.embassynews.ca/news/2014/07/23/good-luck-have-the-scotch-ready-defence-department-struggled-to-meet-planning-expectations-into-2013/45823

Mark
Ottawa

The issue: DND spends as much as more than half of all the other departments put together. Planning a $20B defence budget is about a hundred, not twenty, times more complicated than planning a $1B Heritage department budget. TBS guidelines and planning models are optimized for the smaller department cases, and TBS has only a dim appreciation of this (up until recently, the TBS defence analyst was also the TBS Canada Post analyst, as though those two portfolios were somehow comparable in scale). DND procurements need to be approached differently, much as the PS would hate to admit it.

 

[GR66]

The issue: DND spends as much as more than half of all the other departments put together. Planning a $20B defence budget is about a hundred, not twenty, times more complicated than planning a $1B Heritage department budget. TBS guidelines and planning models are optimized for the smaller department cases, and TBS has only a dim appreciation of this (up until recently, the TBS defence analyst was also the TBS Canada Post analyst, as though those two portfolios were somehow comparable in scale). DND procurements need to be approached differently, much as the PS would hate to admit it.

Does larger size automatically equal greater complexity in the budget?  DND certainly has more personnel, property, equipment, vehicles, etc. than any other department but is budgeting for them automatically more complex just because there's more of them than in other departments?  The equipment that DND procures is certainly more expensive on a per-unit basis than items in other departments but is the budgetary planning for a $1 billion dollar item really 20 or 100 times more complicated than budgetary planning for a $10 million dollar item?  Do unit cost or quantity always mean more complexity in terms of budgetary planning?

Certainly there are MANY things in DND that don't necessarily fit a standard mould that might be applied to other government departments, but I'm not convinced that "we're special" is always a reasonable argument as to why DND can't be more efficiently run or more cost effective in it's programs (including procurement). 

Only $2.8 billion of last year's budget (15% of the total DND budget) was slated toward Acquisition and Disposal of Machinery and Equipment (http://www.forces.gc.ca/en/about-reports-pubs-quarterly-financial/dept-budget-expenditures-june-2013.page).  I imagine quite a chunk of that is concentrated in relatively few, but expensive procurement programs.  I'd hope that DND would have enough of a handle on these programs to be able to report back to the TB on them in a timely manner. 

 

[Kirkhill]

GR66:

A  $100,000,000 budget  buys 100 projects of $1,000,000 each.  $1,000,000,000 will buy Heritage a lot of paperclips, desks and air time.  Managing 100 projects of that size still represents an incredible amount of effort.

A  $20,000,000,000 budget buys 20,000 projects of $1,000,000 each......

And a tank of $3,000,000 is actually, at some level, three separate $1,000,000 projects that somebody somewhere is managing.

 

[Humphrey Bogart]

text taken from the article  http://www.embassynews.ca/news/2014/07/23/good-luck-have-the-scotch-ready-defence-department-struggled-to-meet-planning-expectations-into-2013/45823

The investment plan is a document that government departments must submit to the Treasury Board every three years. The plan “outlines the department's long-term strategic direction and objectives, and articulates how these are aligned with the objectives and priorities of the government of Canada,” the Treasury Board website reads.

The plan must include information on the department’s “strategic plans and priorities,” detailed plans for investing in assets and acquired services, an overview of any issues identified with the department’s management of investments, and more, according to the website.

The investment plan is a “monster” of a document that calls for a large amount of detail, and treats military acquisitions like those from any other government department, said the former senior National Defence official, who would only speak on condition of anonymity.

“You have to write a business case on why you need to buy a tank,” the former official said.

The above statements were the part of the document that caught my eye the most.  It tells me that we have no strategic plans or priorities which is concerning.  Some would say this is because the government hasn't given us any direction which has left us in limbo.  I don't agree with this because while the government's direction may be vague, they have given us a budget and they have given us a broad ranging document in the Canada First Defence Strategy.

Why doesn't the department practice what they preach and exercise a little bit of mission command and get on with it already.  In the absence of direction, make your own.  At least that's what I was always told.

Also, to whomever this former "National Defence Official" is.  While we may not cut the same slice of bacon as other departments, why should that preclude us from having a business plan?  We are in the business of war but that doesn't mean we are allowed to be wasteful as last time I looked economy of effort and administration were two key principles. 

What's so wrong with having to define why we need to buy a tank or any other tool in our toolbox for that matter? 

 

[Edward Campbell]

text taken from the article  http://www.embassynews.ca/news/2014/07/23/good-luck-have-the-scotch-ready-defence-department-struggled-to-meet-planning-expectations-into-2013/45823

The above statements were the part of the document that caught my eye the most.  It tells me that we have no strategic plans or priorities which is concerning.  Some would say this is because the government hasn't given us any direction which has left us in limbo.  I don't agree with this because while the government's direction may be vague, they have given us a budget and they have given us a broad ranging document in the Canada First Defence Strategy.

Why doesn't the department practice what they preach and exercise a little bit of mission command and get on with it already.  In the absence of direction, make your own.  At least that's what I was always told.

Also, to whomever this former "National Defence Official" is.  While we may not cut the same slice of bacon as other departments, why should that preclude us from having a business plan?  We are in the business of war but that doesn't mean we are allowed to be wasteful as last time I looked economy of effort and administration were two key principles. 

What's so wrong with having to define why we need to buy a tank or any other tool in our toolbox for that matter?

Another  :goodpost:

TB is not the enemy, it is, rather, a control measure - think of it as a boundary or a phase line in your tactical plan. But, as with a boundary, TB and its rules, are there for a larger purpose.

There is a reason, as I have mentioned many times in the past, why the policy centre in Ottawa (PCO, Finance and TB) do not trust DND: they think that we you DND's leadership and senior management are lazy and waaaay too self important, too full of themselves.

 

[Journeyman]

Why doesn't the department practice what they preach and exercise a little bit of mission command and get on with it already. 

How timely. 
Allan English, "Whatever Happened to Mission Command in the CAF?" Canadian Military Journal, Vol 14, No 3

 

[dapaterson]

A far more interesting read is MGen (ret'd) Gosselin's history of civilians in NDHQ and the frictions that resulted.

Deputy Minister C.R. “Buzz” Nixon declared in 1982 that NDHQ was staffed inappropriately by military officers who were incapable of managing well in the Ottawa environment, and that “military parochialism,” or friction between the services within the military, was contributing to several projects and ideas being unsuccessful in Ottawa.

http://www.journal.forces.gc.ca/vol14/no3/page38-eng.asp

 

[McG]

There is a reason, as I have mentioned many times in the past, why the policy centre in Ottawa (PCO, Finance and TB) do not trust DND: they think that we you DND's leadership and senior management are lazy and waaaay too self important, too full of themselves.

We are too ready to break/by-pass/ignore procedures for major projects without understanding either the reason those procedures exist or the long-term perils from which they protect us.

Fully define the requirement before launching the acquisition?  We are too smart to need that step everytime.

 

[Edward Campbell]

A far more interesting read is MGen (ret'd) Gosselin's history of civilians in NDHQ and the frictions that resulted.

http://www.journal.forces.gc.ca/vol14/no3/page38-eng.asp

But the problem is: there IS an established, constitutional split between the civil and military realms. We, followers of the British tradition, have been working at this for 400+ years and we've been taking it seriously since Walpole clashed with the king and the military notables (and won) in the 18th century. Defence policy IS the domain of civilians, just as the conduct of military operations is the domain of soldiers (as Roosevelt knew and Churchill didn't).

I watched too many GOFOs come to Ottawa and decide that they liked the civil service power game - a game they were ill equipped to play, by training and experience and, I would argue by the ethos that had made them into GOFOs in the first place. By trying to be high level bureaucrats they left the military field open to very bright civil servants - think Bob Fowler who intruded, directly, into the "conduct of operations' domain whenever he chose ... because he could.

 

[Crispy Bacon]

A far more interesting read is MGen (ret'd) Gosselin's history of civilians in NDHQ and the frictions that resulted.

http://www.journal.forces.gc.ca/vol14/no3/page38-eng.asp

:goodpost: