Ottawa on track to achieve NATO’s 5% spending target by 2035, Carney says

Prime Minister Mark Carney says the federal government is on track to meet the North Atlantic Treaty Organization’s target for defence spending of five per cent gross domestic product by 2035, but turning that into sustained economic growth may be a different challenge, according to defence industry watchers.

He said his government is “working towards” spending 3.5 per cent of gross domestic product on major defence investments. This includes a new submarine fleet and the newly announced plans to purchase Saab’s GlobalEye airborne early warning aircraft.

The promise is part of his commitment to NATO’s Defence Investment Pledge, which aims to bring Canada’s defence spending to five per cent of annual GDP: 3.5 per cent on direct military spending and 1.5 per cent on critical defence infrastructure.

“A strong, resilient defence industry requires fundamental rethinking of our approval and production targets,” Carney said in his keynote speech at the CANSEC security conference in Ottawa on Wednesday. “Thanks to you … we are now building again.”

The prime minister said that rather than checking items off a pre-existing defence wish list, the government wants to ensure the $81.8 billion in spending over five years that was outlined in November’s budget has long-term benefits for the Canadian economy.

“There’s a series of other investments that we can make that will help protect Canadians. We need to help our allies, but we can do that in a way, given that the industry is changing rapidly, that maximizes the Canadian benefit,” Carney told reporters after his speech.

Economists have called the recent push to expand Canada’s defence sector one of the most significant financing initiatives in the country’s history, providing a “once-in-a-generation opportunity” to invest in the economy.

Analysts from CIBC Capital Markets said in a recent note that the Defence Industrial Strategy and the Defence Investment Agency (DIA) could accelerate deployment and anchor supply chains.

“The federal government’s unified economic resilience and national security mandate is translating into tangible structural change,” the analysts said. “The formation of the DIA addresses long-standing procurement bottlenecks by consolidating authority, enabling independent capital deployment and introducing alternative contracting models such as early down-selection and sole sourcing.”

The analysts, however, said the investments have to extend beyond traditional forms of defence.

“The investment requirement extends beyond defence assets into enabling infrastructure, including housing, utilities, and logistics, particularly in the North,” they said.

David Perry, chief executive of the Canadian Global Affairs Institute, said he wants more details about the spending from Carney. He said the government has not provided projection details on how they’ll get to the five per cent GDP target, something the Parliamentary Budgetary Officer also flagged in a Feb. 5 report.

“They mean what they say, and so far they’ve been delivering on it in terms of spending,” he said.

But he said a lot of people are still skeptical about how they hit the previous defence spending target of two per cent of GDP.

“However, myself and lots of other people are really skeptical about how they’re going to be able to reach (two per cent of GDP on defence spending), because that announcement didn’t come until halfway through June.”

Perry said the DIS is trying to maximize economic returns by increasing defence exports, investing in Canadian intellectual property and growing smaller companies domestically, which would in turn boost Canada’s economic productivity and labour market.

“The government needs long-term plans to continuously make purchases in some kind of forecasted predictable way over time, and not just create opportunities for the next five years that then go away after 20 years,” he said. “They need to create opportunities where companies can grow, scale, export, and rely on their home market to buy from them.”

Christyn Cianfarani, chief executive of the Canadian Association of Defence and Security Industries, said any funding commitment needs to go beyond the current Liberal government.

Defence industry leaders have been calling on the Canadian government to use the sector as an economic driver for years, but it will take a long time for Canadians to see the benefits from the investments, she said.

“Carney has baked the investments into the government’s fiscal framework, which means he is thinking beyond his own term as prime minister. The challenge will be to see it go through successive governments, because this is going to be a generational sort of plan,” she said.

“We would hope that this starts a national conversation in Canada. The investments that we are making today need to stay in the fiscal framework for successive governments to come. That is the only way it’s going to work.”

• Email: ptran@postmedia.com