Spending

Spending Reductions and Lapsed Funding

Key Facts

Details

Spending Reductions

• Early efforts are underway to reduce National Defence’s spending. Reductions related to operating expenditures will be phased in over three years and are not expected to result in job losses outside of normal attrition, or reallocation, ensuring that National Defence’s work is focused on high-priority initiatives.
• On November 9, 2023, Treasury Board Secretariat announced that, as part of Supplementary Estimates B, $211 million of the National Defence budget would be frozen to reflect expected reductions in spending on consulting, other professional services, and executive travel.
  • Travel ($58.6M ongoing):  Proposed savings look to reduce the budget for discretionary, non-operational travel by approximately 9% of total 2022-2023 travel expenditures, or $58.6M ongoing.
  • While care will be taken when implementing reductions to minimize impacts to strategic priorities, it may not be possible to ensure that the effects of reductions will be completely benign.
  • Impacts could include reductions in travel related to training and education, domestic leadership travel to visit Bases and Wings, and, potentially, some lower priority international travel. 
  • Potential negative impacts will be mitigated through reliance on proven telecommunications technologies, hybrid approaches to travel, and an assessment of effective participation personnel for specific activities.
  • Third-party contracts: In collaboration with the Digital Transformation Office, the CIO group has created a joint directive on enhancing transparency and efficiency in digital advisory contracting. This directive is about becoming smart-buyers, and is an opportunity for National Defence to demonstrate considerable cost-savings, implement SSE requirements, the VCDS Directive on CAF Digital Transformation, and the Government of Canada’s Digital Ambition.
  • Through the Digital Services Board, National Defence will obtain and maintain management, oversight, and visibility on digital advisory contracting investments across the level one organization (L1s) with the objective to comply with the requirement to refocus Government spending as outlined in Budget 2023, ensure adherence to the various policies applicable, and to ensure value-add to the enterprise. 
• Specific reduction plans will be reported through upcoming DND Departmental Plans and Departmental Results Reports.
• These reductions will not impact direct contributions to military capability or support to military families and overall spending on defence will continue to grow.

Lapsed Funding

• National Defence introduced a flexible funding model in 2017 to re-allocate lapsed funds to support emerging priorities or future needs.
• This flexibility facilitates the delivery of major projects which require multi-year funding.
• Despite sound long-term planning, most defence procurement projects do not advance exactly as planned—some progress faster, others slower, for a variety of operational, logistical, and program reasons.
• To mitigate lapses in funding authorized by Parliament, National Defence is taking the following actions:
  • Improving its capital funding forecast to ensure that the Department does not request more funding authorities from Parliament than required;
  • Funding new projects from surplus in-year funding rather than requesting additional funding from Parliament;
  • Requesting funding for additional military deployments later in the process to ensure only the required funding authorities are requested (to prevent operating lapse); and
  • Monitoring forecasted exchange rates to better forecast their impact on funding estimates (to mitigate grants and contributions lapse).
• During a recent appearance at NDDN, MP Bezan referenced that the procurement of capabilities is 21% short, or $1 billion dollars, in lapsed funding.

Parliamentary Budget Officer

• According to a Parliamentary Budget Officer (PBO) report – Planned Capital Spending Under Strong, Secure, Engaged – Canada’s Defence Policy: 2022 Update – from 2017-18 to 2020-21, there was a cumulative shortfall of almost $10 billion between what National Defence spent on capital and what was originally planned under Strong, Secure, Engaged (SSE).
• Of note, at the time of the PBO’s report (March 2022), National Defence was navigating the impacts of COVID-19 on supply chains.
• Given the complexity of the projects in question, National Defence adjusts spending as project schedules and timelines are refined and lessons are learned.
• As National Defence continues to advance and deliver on all SSE projects, flexibility in our funding model will in fact allow us to redistribute funds effectively.

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Departmental Results Report 2022-2023

Details

National Defence Departmental Results Report 2022-2023 (DRR)

• In the DRR, the percentage of operations that can be conducted concurrently (Operational Readiness) is reported to have dropped from 100% to 40% from the 2021-2022 report, while the percentage of force elements ready and able to contribute to operations (Force Element Readiness) has dropped from 71% to 61%.
• The DRR further states that the CAF is "currently unable to conduct multiple operations concurrently per the requirements laid out in the 2017 Defence Policy (SSE)."
• This sharp drop in reported operational and force element readiness is primarily due to new metrics being introduced for the 2022-2023 to produce these measures.

Metric 1: Operational Readiness (Dropped from 100% to 40%)

• In the past, the Operational Readiness metric was based on the percentage of requests for operations supported by the CAF, as identified through MCs (named Ops) and Requests for Assistance (RFA from OGDs and other levels of government (often domestic responses).
  • This metric often produced a result of 100% as the CAF were only tasked with what could be achieved.
• The new metric used in the 2022-2023 report leverages more sophisticated tools and analysis developed for the Force Posture and Readiness (FP&R) campaign. The metric calculates the CAF’s ability to undertake its core mission set concurrently with scenarios that could be required to fulfill the government’s direction in SSE.
• This change was pursued in the spirit of transparency, and to provide a more accurate picture of the CAF’s ability to meet its mandate as directed in SSE, rather than simply focusing on whether the CAF completed operational tasks when requested or as part of government-directed named operations.  

Metric 2: Force Element Readiness (Dropped from 71% to 61%)

• This metric also saw a change in methodology, where Force Elements are now weighted according to their operational impact and size.
• Approximately 7% of the reported 10% drop in forces elements ready for operations is accounted for by this change in methodology.
• This new weighted model accounts for the size and operational impact of various force elements, rather than a simple counting of each one (e.g., a Frigate with 340 personnel was previously counted as having the same operational impact as a Military Police detachment with 8 people).
• The remaining decrease in the ability to conduct concurrent operations (approx. 3%) may be explained by ongoing challenges with reconstitution (i.e., lack of personnel), equipment availability, and sustainment issues.

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