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DeepDive: Canada’s natural resources are a long-neglected ‘golden goose.’ It’s time to change that

Deepdive

DeepDives is a bi-weekly essay series exploring key issues related to the economy. The goal of the series is to provide Hub readers with original analysis of the economic trends and ideas that are shaping this high stakes moment for Canadian productivity, prosperity, and economic wellbeing. The series features the writing of leading academics, area experts and policy practitioners. The DeepDives series is made possible thanks to the ongoing support of Centre for Civic Engagement.

It’s increasingly recognized in policy and political circles that one of the biggest challenges facing the country is economic stagnation and declining living standards. This has led policy scholars to try to understand the causes and sources of Canada’s economic malaise. 

New research by Macdonald-Laurier Institute fellow Heather Exner-Pirot points to challenges in Canada’s natural resource sector as a “smoking gun.” Her basic insight is that a combination of economic forces and policy-induced harms have undermined what her colleagues Philip Cross and Jack Mintz have characterized as the country’s “golden goose” and that this has significant explanatory power for the overall decline in business investment, productivity, and economic activity. 

The purpose of this DeepDive is to test that hypothesis. It aims to understand the economic importance of Canada’s natural resource sector and the extent to which the headwinds that it has faced over the past several years have contributed to the country’s “lost decade.” 

As part of this analysis, we also examine the factors—including the role of government policy—that have impeded the natural resource sector’s ability to contribute to more economic growth and higher living standards for Canadians.  

Canada’s natural resource endowment

Canadian economic history is replete with an understanding of the disproportionate role of our natural resource endowment. From the fur trade to the “staples thesis,” scholars have put natural resources at the centre of their conception of Canada’s political economy. 

Not everyone of course has viewed the outsized role of natural resources in favourable terms. The notion of “hewers of wood and drawers of water” is often characterized as a sign of failure. It represents a squandered opportunity on the part of Canada to transition to what are sometimes perceived as higher-value sectors. One can find plenty of evidence of policy scholars and political actors lamenting Canada’s so-called “resource curse.”

In 2016, Prime Minister Justin Trudeau, for instance, told the World Economic Forum: “My predecessor wanted you to know Canada for its resources. Well, I want you to know Canadians for our resourcefulness.” 

Cardus Institute scholar Brian Dijkema has challenged this line of thinking as misguided and harmful to Canada’s economic interests. As he and a co-author have written

We need to stop thinking that being “hewers of wood and drawers of water” is something to be self-conscious about and start seeing it as the source of Canada’s global advantage. In fact, hewing wood and drawing water has…helped to turn Canada into a land flowing with milk and honey that continues to attract people from all over the world.

Dijkema’s characterization is backed up by the data. Across a number of key economic metrics—  including economic activity, employment, income, investment, productivity, and exports—Canada’s natural resources are a huge economic asset. 

The challenges that the sector has faced over the past several years—including as a result of specific government policies—are a key contributor to Canada’s overall economic malaise. The inverse therefore is also true: boosting our natural resourcesThe definition of natural resources used throughout the DeepDive follows recent work by Cross and Mintz, unless otherwise specified. That is to say, the natural resource sector constitutes agriculture, forestry, fishing, mining, utilities, pipelines, and manufacturers using natural resources for at least 17 percent or more of all inputs. This definition is quite expansive and at points the DeepDive zooms in on certain critical components of the natural resource definition. could have positive economy-wide effects. 

The economic benefits of natural resources
Economic activity 

The natural resource sector is a major driver of Canada’s economic activity. In 2019, according to estimates by Cross and Mintz, natural resources accounted for 14.9 percent of Canada’s gross domestic product. This percentage has fallen in recent years, after peaking in 2008 at 19.5 percent, when the commodity cycle crashed in 2014-15. 

Using the 2019 estimates, the oil and gas subsector was the largest overall contributor to the natural resource sector’s economic output, accounting for 28 percent of the sector’s total economic contribution. Mining accounted for roughly 10 percent of the natural resource sector’s output, with agriculture, forestry, and fishing adding another 12 percent. The remainder of the sector’s economic contributions are derived from utilities, resource-intensive manufacturing, and pipeline transport. 

Overall, what is clear is that notwithstanding the 2014-15 drop in commodity prices and the harms to the sector from government policy, natural resource development continues to be a major source of economic output in Canada. 

Employment

When considering the sector’s employment impact, we use a slightly truncated definition of natural resources to utilize an existing Statistics Canada dataset that better allows for inter-provincial comparisons.

Overall, in 2021, natural resources employment totaled almost 920,000 jobs, or about 5.6 percent of total Canadian employment. Canada’s four largest provinces account for 86.5 percent of employment in the natural resource sector. Ontario leads the way with over 280,000 jobs, followed by Quebec with almost 200,000, Alberta with almost 190,000, and BC with almost 120,000. 

Not only is the natural resource sector a major source of total employment, but the distribution of its employment is highly advantageous too. The geographical distribution of natural resource jobs diverges from the concentration of employment in a small number of major Canadian cities. In fact, a 2021 Natural Resources Canada report found that in more than 1,800 rural and remote communities across Canada, most of which have populations of 10,000 or less, an average of 30 percent of jobs in those communities were dependent on the natural resource sector. 

Mineral deposits, managed forests, and oil and gas reservoirs are dispersed across the country and generally located near rural and remote communities. Take the oil and gas sector for instance. It is present in Newfoundland, southwestern Ontario, Alberta, and Saskatchewan, as well as potentially in the Arctic. This provides well-compensated employment opportunities for those who want to remain in or closer to their own communities. 

Natural resources also employ people across the skills distribution, including large numbers without post-secondary credentials. In fact, more than 40 percent of those employed in the sector in 2021 had a high school diploma or less. 

As other parts of the economy have gone through a process of “job polarization” in which demand for mid-skilled workers has fallen significantly, the natural resource sector has protected Canada from middle-class erosion experienced elsewhere. Its sustained labour demand for well-paid upstream oil and gas roughnecks, forest managers, and mining technicians working in the field and midstream locations has been identified by University of British Columbia economist Kevin Milligan as responsible for “sustaining Canada’s middle class.”

Incomes

Incomes are higher in the natural resource sector than most other parts of the economy. The average gross weekly pay in the mining and oil and gas sectors has been consistently the highest in Canada since 2007. As seen in Figure 1, the average weekly salary of $2,302.94 is double that of the average service worker ($1,145.63) and is even more than the average in professional services, finance, or health care. 

Source: Statistics Canada Table 14-10-0204-01. Graphic credit: Janice Nelson.

The natural resource sector’s wage premium has been especially beneficial to Indigenous Canadians. Indigenous workers in the mining and oil gas sectors have the highest median income of their peers by more than double ($99,000 versus $41,000). 

According to the Indigenous Resource Network, the Indigenous workforce in forestry, mining, and oil and gas is higher than its overall share of the population and quite a bit higher than the percentage in the federal government (see Figure 2). 

Source: https://www.newswire.ca/news-releases/resource-sector-provides-highest-paying-jobs-for-indigenous-workers-in-canada-846492054.html. Graphic credit: Janice Nelson.
Investment 

Natural resources also dominate Canadian overall business investment. In 2023, capital investments in the natural resources sector were estimated to amount to $109.0 billion or 43.6 percent of all business investment in tangible assets such as structures, machinery, and equipment. At the height of the commodity cycle that coincided with a large upswing in the sector’s capital expenditures, natural resources accounted for as high as nearly 60 percent of all business investment in 2014. 

As of 2023, energy accounted for over 60 percent of the sector’s total business investment, down from 80 percent in 2014. While energy’s share of sector business investment may be falling, investment has continued to rise in mining and utilities, as those subsectors expand their capital outlays to keep up with heightened demand from growing electrification efforts.

Productivity 

Although Canada is in the midst of a productivity crisis in overall terms, the natural resource sector is something of an outlier. Mining and oil and gas extraction, as well as utilities, are some of Canada’s most productive industries, measured as real output per hour worked. Using data from Statistics Canada, figure 3 shows that labour productivity in the mining and oil and gas extraction sectors is more than three times greater than the all-industry average and almost three-and-a-half times greater than the government sector. 

Source:  Statistics Canada Table 36-10-0480-01. Graphic credit: Janice Nelson.
Exports

Energy products alone are Canada’s most lucrative export sector, outearning every other subsector,  including, for instance, commercial services and motor vehicles (see Figure 4). Added together with mining and forestry, these three natural resource subsectors have made up about 30 percent of total exports since 2017. They are critical building blocks of a stable Canadian economy. Additionally, they offer a unique geographic-based value proposition because they cannot be outsourced to other countries. The resources and the operations to extract them must be located in Canada because the deposits are here. In an increasingly globalized world, this is a true advantage to building a strong domestic economy.

Source: Statistics Canada Table: 12-10-0161-01. Graphic credit: Janice Nelson.

The key takeaway here is that across a number of key economic metrics—including economic activity, employment, income, investment, productivity, and exports—the natural resource sector is a huge economic asset. Even as it has faced headwinds (discussed below in more detail) it has generally outperformed other parts of the economy. It stands to reason, therefore,that if Canada has a more hospitable policy environment for natural resources, then they can play a key role in boosting overall economic output. 

Challenges facing the natural resources sector

If the natural resource sector is the main engine of the Canadian economy, it has not been firing on all cylinders. Since 2015, for instance, natural resource exports have actually shrunk in real terms (see Figure 5). Oil and gas exports have decreased by as much as 13 percent. Mining and forestry exports shrunk by 5 percent and 2 percent respectively. 

Source: Statistics Canada Table: 12-10-0161-01. Graphic credit: Janice Nelson.

Similarly, while the sector remains a major source of business investment, it has experienced a decline itself over the past several years. As Tyler Meredith, a former adviser to Prime Minister Trudeau, noted in a previous Hub essay, resource investment actually fell between 2014 and 2022 by as much as $52 billion. Today annual investment in mining and oil and gas is about half the level that it was during the Harper government. 

One way to understand these developments is to compare the value of major resource projects planned or underway in Canada since the Trudeau government was first elected. According to the government’s own Major Project Inventory, in 2015, the total projected value of Canada’s next decade of resource projects was $712 billion. As of 2023, it stands nominally at $572 billion, representing a drop of $150 billion (see Figure 6). In real terms, it amounts to a decline from $712 billion to $454 billion—or $258 billion in eight years. 

Source: Major Project Inventory Reports 2015-2023. Graphic credit: Janice Nelson.

The trend is similar when one examines the number of canceled projects. As Figure 7 shows, since 2015, Canada has seen nearly $670 billion in natural resources projects suspended or canceled. If even 21 percent of the value of these failed projects had been realized, the nominal investment loss would have been eliminated. 

Source: Major Project Inventory Reports 2015-2023. Graphic credit: Janice Nelson.

It prompts the question: what is happening? 

Economic factors—namely the commodity downturn in 2014-15—are a big part of the story. Research by the Bank of Canada finds that the decline in oil prices that began in 2014 and persisted until 2022 had significant effects on the sector and the economy as a whole. There is no doubt for instance that it had a negative effect on resource investment and employment. 

But it would be wrong to assume that the challenges facing the sector have been limited to exogenous factors. Government policy has played a role too. 

As Exner-Pirot outlines, the Trudeau government has enacted a series of policies that have harmed the investment climate for resource projects. These include: The Impact Assessment Act, which further inserted the federal government into resource project approvals, the oil tanker moratorium, the moratorium on offshore Arctic oil and gas licensing, industrial carbon pricing, the UNDRIP Action Plan, rejection of the Northern Gateway pipeline, methane regulations, Clean Fuel Regulations, the proposed Clean Electricity Standard, and now the proposed emissions cap for the oil and gas sector. 

Evidence from the Fraser Institute’s latest survey of energy sector executives indicates that these policies have had a deleterious effect on the investment climate by raising costs and contributing to policy uncertainty. 

The emissions cap is a good example. This is a policy that specifically targets Canada’s biggest source of exports with greater regulatory stringency than any other part of the economy. Separate analysis by Public Policy Forum fellow Don Wright and University of Calgary economist Trevor Tombe finds that such a policy will come with significant economic costs—including in Tombe’s case an estimate that the costs will extend beyond the oil and gas-producing provinces.  

Key takeaways

The evidence is rather clear that being a “hewer of wood and drawer of water” has produced positive economic outcomes for Canada. The natural resource sector—including forestry, mining, and oil and gas—is a major source of employment, investment, and economic output. It is also more productive than other parts of the economy and is the source of well-paying jobs for people and places that are less represented in other sectors. 

Yet notwithstanding the sector’s major contributions to Canada’s overall economy, it has faced headwinds over the past decade or so that have held it back. A major one is the end of a commodity supercycle in 2014-15 that put downward pressure on investment and employment for a near decade. The good news is that these exogenous forces have since dissipated and, as Exner Pirot highlights, we seem to be moving into a prolonged bull market for commodities. 

Canada’s ability to leverage growing global demand will require overcoming the second challenge facing the sector: harmful government policy. The past decade has witnessed a cumulative burden of regulations and other policies on our natural resources that have produced significant opportunity costs. 

At a time when policymakers are concerned with boosting economic growth and Canadian living standards, it stands to reason that one of the most impactful steps that they could take is unleashing the natural resource sector. As Exner-Pirot rightly concludes: 

Bright spots in the natural resource sector’s performance have mostly been despite, rather than because of, federal government policy. As we move into a prolonged bull market for commodities, the entreaties of the last century should be heeded. Let us celebrate and support our resource and energy sector with good, common sense policy. When we do, it can provide an incredible foundation for growth, productivity, security, and prosperity for all Canadians. 

DeepDive: Just how bad is Canada’s defence spending problem? Downright disastrous—with little hope in sight

Deepdive

DeepDives is a bi-weekly essay series exploring key issues related to the economy. The goal of the series is to provide Hub readers with original analysis of the economic trends and ideas that are shaping this high stakes moment for Canadian productivity, prosperity, and economic wellbeing. The series features the writing of leading academics, area experts and policy practitioners. The DeepDives series is made possible thanks to the ongoing support of Centre for Civic Engagement.

The current state of Canada’s military and defence spending has been the subject of international criticism and a source of growing isolation from key allies. In a world of evolving geopolitical tensions and new and emerging threats, Canada’s underinvestment in national defence represents a major vulnerability. 

Canadian policymakers seem to increasingly understand this point. Last week, former Conservative defence minister Jason Kenney was critical of his past government for failing to boost defence spending. However, while the recent federal budget earmarked incremental spending—though it was back-end loaded—Canada will still fall short of the NATO target of 2 percent of GDP. 

One of the inherent challenges to policy thinking concerning Canadian defence policy and military spending is that, as previous auditor general reports have noted, it’s quite challenging to understand the state of defence spending due to various factors, including the Department of National Defence’s poor procurement record and the complexity of its accounting model. 

The purpose of this DeepDive is to situate recent trends with respect to defence spending in a historical context as well as to discuss the state of Canada’s military capabilities and present some of the challenges that the Canadian government will face as it seeks to increase defence spending in an increasingly turbulent world.

What is the 2-percent target?

Historically, Canada was a relatively large spender on national defence. After the end of the Korean War in the early 1950s, Canadian military expenditures peaked at over 7 percent of Gross Domestic Product (GDP) before steadily falling to roughly 2 percent in the 1980s. 

Things, however, began to change with two episodes of fiscal consolidation, first under the Chrétien government in the 1990s and then under the Harper government in the 2000s. As a result, defence expenditures fell from 2.11 percent in 1986 to roughly 1 percent of GDP by 2014. At the same time, the size of the Canadian Armed Forces (CAF) was cut by 30 percent from 90,000 active troops in 1990 to 62,000 in 2005. The force size has remained mostly unchanged ever since. 

It must be noted that 2014 wasn’t just an important year for being a low point in post-Second World War defence spending. It’s also the year when NATO implemented its much-discussed 2 percent of GDP defence spending target.

The origin of the 2-percent target actually dates back to 2006 when the notion of such a minimum national spending goal was first mentioned in a NATO document. Yet, a spending pledge would not be formalized until the 2014 NATO summit in Wales, which came on the heels of Russia’s invasion of Crimea in the same year. 

The HMCS Yellowknife, a Kingston-class coastal defence vessel during the Defence on the Dock at the Ogden Point Breakwater District in Victoria, Sunday, Sept. 17, 2023. Chad Hipolito/The Canadian Press.

While the focus is often on the overall defence spending target, two spending commitments were actually made in the NATO Wales Summit Declaration. Specifically, NATO members pledged to spend both 2 percent of the GDP on defence while also ensuring that 20 percent of their defence budgets are spent on major new equipment purchases, including expenditures related to research and development. The overall goal of the two commitments was to ensure that all NATO allies recognized the need to: 

reverse the trend of declining defence budgets, to make the most effective use of our funds and to further a more balanced sharing of costs and responsibilities. Our overall security and defence depend both on how much we spend and how we spend it. Increased investments should be directed towards meeting our capability priorities, and Allies also need to display the political will to provide required capabilities and deploy forces when they are needed. 

While the spirit of the NATO commitment was laudable and necessary, the notion of spending targets is not without criticism. The main criticism is that while the 2-percent target may be beneficial as a political rallying point, it’s merely an input metric that tells us nothing about defence outputs like operational readiness, capabilities, tactics, strategy, and overall competency. Instead, critics argue that the alliance and its members should focus more on ensuring that there is adequate force planning, readiness, and fighting capability among alliance members. 

A more recent criticism is that the 2-percent target itself is too low in an increasingly dangerous world. For example, Polish President Andrzej Duda has argued that NATO’s spending target should be upped to 3 percent of GDP, given growing concerns about Russian attacks on NATO members. Likewise, last week, U.K. Defence Secretary Grant Shapps stated that the U.K. government now believes that the NATO target should be 2.5 percent of GDP.

How much does Canada spend on defence?

Although the NATO spending pledges are not without controversy, they are, nevertheless, what alliance members agreed to and thus serve as a baseline for spending analysis. The question then is: how does Canada stack up?

Figure 1 displays Canadian defence spending from 2014 to 2023 using figures directly from NATO. Across this period, defence spending has risen from 1 percent of GDP in 2014 to 1.3 percent by 2023. In real dollar terms (2015 constant prices), Canadian defence spending rose from $19.9 billion CAD in 2014 to $29.9 billion in 2023.All figures are in CAD. Some of the increased spending, however, needs to be taken with caution. Early in this period, NATO revised its definition of defence spending, making it more flexible to include spending items that were not previously allowed, such as veterans’ pensions and benefits. These definitional changes partly explain the increase in Canada’s absolute spending. 

How does Canada compare to the rest of the NATO membership on defence spending relative to the size of their economies? As Figure 2 shows, quite poorly. Out of 30 NATO members for which there is data (Iceland and Sweden are not included in the NATO spending figures), Canada ranks the fourth lowest in terms of defence spending relative to the size of its economy, only ahead of Spain, Belgium, and Luxembourg.

Based on 2023 estimates, only 11 NATO members were meeting the 2-percent target. However, this is quickly changing, and it could mean that Canada will look even more like a laggard relative to alliance membership. In February 2024, NATO Secretary General Jens Stoltenberg reported that 18 alliance members, more than half, were on track to meet the 2-percent threshold by the end of the year, representing a six-fold increase since 2014.

Canada’s performance is even worse if one considers both the 2 percent spending target in conjunction with the 20 percent of defence expenditures going to new equipment target. As can be seen in Figure 3, Canada is in the unenviable position of being the only NATO member in 2023 to neither meet its 2 percent overall defence spending target nor the 20 percent equipment spending target. Ten members currently meet both.

Although NATO lacks a formal accountability mechanism to ensure that members meet the targets, states that fall below them can suffer reputational costs and even become the target of naming and shaming exercises by other alliance members. In February 2024, for example, NATO Secretary-General Jens Stoltenberg admonished Canada for not meeting the targets stating, “I expect Canada to deliver on the pledge to invest 2 percent of GDP on defence, because this is a promise we all made.”

The fact that Canada is the only member of the alliance to not meet either spending target represents therefore both a threat to its international reputation as well as its own defence and security. It prompts the obvious question: what would it have taken for Canada to at least meet the 2-percent target every year since 2014? 

Using Canada’s defence spending levels and estimates of Canadian real GDP, we estimate that the cumulative real value of Canada’s NATO spending gap from 2014 to 2022 is approximately $150 billion (in 2017 dollars). That is to say, real spending on defence would have needed to be $150 billion higher in total between 2014 and 2022 to meet Canada’s NATO spending pledges in each year, or approximately $16.7 billion each year on average. To put this into perspective, based on the Parliamentary Budget Office’s Ready Reckoner tool, which provides estimates of revenue impacts of tax changes, a 1.5-percentage point increase to the GST produces an additional $15 billion in incremental revenues each year, less than what would be required to fund the average annual increase in real defence spending.

From spending to operational issues

Canada’s defence spending woes are increasingly manifesting as operational issues. Consider first the total size of the CAF. According to estimates provided to NATO, Canada’s armed personnel stood just shy of 67,000 in 2023, making it the tenth largest force among NATO members. However, things look different if you consider force size relative to population. Figure 4 presents these estimates. Here we use 2022 military personnel figures to match with the most recent population data available for each member from the World Bank. When looking at military personnel as a share of the total population, Canada ranks second last.

Indeed, not only is the size of Canada’s armed forces small when scaled by population size compared to other NATO members, but internal documents from the Department of National Defence (DND) are also starting to raise concerns. For example, 2023 documents obtained by the CBC stated that the CAF were short 15,780 members when considering both regular and reserve forces relative to the government’s own targets. 

More troubling in those documents was the internal assessment of equipment readiness. Regarding the navy’s frigates, submarines, arctic and offshore patrol ships, and maritime coastal defence vessels, 54 percent were deemed not serviceable, meaning that they were in no state to deploy. For the airforce’s fighters, maritime aviation, search and rescue, tactical aviation, and transport aircraft, 55 percent were not serviceable. Finally, in the case of the army’s armoured fighting vehicles, artillery, combat support vehicles, logistics equipment, combat support vehicles, and logistics equipment, 46 percent were not serviceable. 

The report noted that the biggest challenge to having equipment serviced and ready to deploy is personnel, in addition to older equipment being more difficult to maintain. As The Hub’s defence expert Richard Shimooka has written: “[Recent funding announcements] are being layered onto a military that has haemorrhaged much of its key personnel. Many individuals, who are already overtasked, rightly wonder who will be there to integrate, operate, or sustain these new capabilities.”

To begin to address some of Canada’s defence spending and operational issues, the Trudeau government has pledged to increase defence spending through its 2024 budget and Canada’s recently released defence policy update titled Our North, Strong and Free, Canada’s first defence policy update since 2017’s Strong, Secure, Engaged

Beginning with the 2024 Budget, the government plans to increase spending directly for DND itself from $26.9 billion in 2022-23 to $49.5 billion in 2029-30 (see Figure 5). This increase includes commitments like $30 billion over 20 years for NORAD modernization and $11.5 billion over 20 years for Canada’s contribution to increasing NATO’s common budget and establishing a new regional office in Halifax for NATO’s Defence Innovation Accelerator for the North Atlantic. It should be noted that based on the nominal GDP projections in the budget, the 2028-29 spending of $46 billion is estimated to be about 1.3 percent of Canada’s projected GDP.

The government’s recently released defence policy similarly doesn’t include a plan to meet NATO targets. Indeed, the policy document anticipates spending 1.76 percent of GDP by 2029-30 while indicating that it will meet the 20 percent equipment spending target. 

More specifically, it commits to investing $8.1 billion over the next five years and $73 billion over the next 20 years to Canadian defence. While several of the initiatives in the defence policy update are laudable, including efforts to increase recruitment and retention, as well as crucial investments in new equipment, a few things stand out.

First, the 1.76 percent of GDP figure is difficult to verify based on what is in the defence policy and the 2024 budget. For example, while the government provides a fact sheet attempting to explain the 1.76 percent figure, roughly 15 percent of Canadian defence spending in 2029-30 is expected to come from other government departments. Yet it’s unclear which departments and programs are accounted for in the calculation.

Shimooka has even written for The Hub that if one accounts for planned or underway projects and personnel additions, which are inexplicably excluded from the defence policy, then the government is likely to exceed the 2-percent target. Either way, the government would do well to be clearer and more transparent about how Canada is planning to get there by the decade’s end.

Second, most of the planned spending is in the out years, despite Defence Minister Bill Blair stating in early March that Canada’s armed forces are in “a death spiral” when it comes to recruitment. Only $612 million in incremental spending is earmarked for the 2024-25 fiscal year, with an additional $1.1 billion coming in the following year. The majority of the incremental $8.1 billion announced in the defence policy update is not expected to be spent for several years. In addition, of the nearly $73 billion that is to be spent on defence over the next 20 years, only 11 percent is planned to be spent in the next five years. Given the severe concerns about the diminished size of the CAF and its operational readiness raised above, the investments in this plan appear inadequate to make a significant difference in the near term.

Furthermore, there are also reasons to question whether the projected increases in defence spending will occur as planned, particularly when focusing on major equipment purchases. It’s one thing to earmark spending increases in government spending documents, but it’s another to ensure that there is adequate state capacity to turn those investments into the personnel and equipment that Canada’s armed forces desperately need.

A lot has been written on the reasons behind Canada’s successive defence procurement fiascos and failures to meet budget targets. These include a lack of accountability, partisan politics that intervenes to ensure defence spending results in partisan “wins,” problems with institutional design in the procurement system, misalignment between project costs and defence policy objectives, an opaque combination of cash and accrual budgeting, and bureaucratic politics that sees different departments and armed forces branches pitted against each other, often with misaligned incentives. 

The situation has gotten so dire that a 2019 Senate report revealed that based on DNDs own analysis, procurement times had reached 16 and a half years by 2010-11, which was 66 percent greater than in 2004. Unfortunately, several recent reports from Canada’s auditor general give little reassurance that much has changed, finding that several recent initiatives were delayed, over budget, and not meeting timelines. With the state of the CAF and Canada’s international commitments in peril, long procurement times mean that the Canadian military will not have the personnel and equipment needed for the threats they face for decades to come. Despite Canada’s poor record in meeting its NATO commitments, the situation could get worse in the short term if planned investments are not realized in a timely manner.  

Key takeaways

One of the barriers to addressing the challenges of low defence spending and personnel and equipment issues within the CAF is that, in the past, Canadian voters placed little political value on seeing these issues solved. Successive governments have responded to the lack of political incentives for change with ambivalence towards defence policy. However, the politics of defence policy may be changing. According to polling from Angus Reid in March 2024, a majority of Canadians (53 percent) favour either increasing defence spending to meet our NATO commitments or going beyond them. This compares to only 43 percent holding those views in November 2019. Likewise, 29 percent of Canadians feel that focusing on military preparedness and presence on the world stage should be our top foreign affairs priority, compared to only 12 percent in 2015. 

As we highlighted above, it’s far from clear that Canada will meet its spending targets according to current plans, and the CAF is in dire need of new personnel and equipment. Despite new spending promises, the evidence suggests that Canada is still off track to meet its targets by the decade’s end, and in any case, there will also likely be several headwinds to actually delivering on its planned spending.

Given the shifting priorities among Canadian voters, it may be time for federal government to more seriously commit itself to meeting its international commitments and address the internal challenges that will stand in the way of realizing those goals.

This DeepDives essay was made possible thanks to the support of readers like you and the Centre for Civic Engagement.