Great new military spending, Canada. Where's the money going to come from?
Todd Hirsch is a Calgary-based economist, author and public speaker. He is also the director of the Energy Transition Centre.
Canada will reach NATO's defence spending benchmark of 2 per cent of GDP this fiscal year – five years earlier than planned.
That's according to an announcement on Monday by Prime Minister Mark Carney. The move is timely and necessary in an unstable world.
Ottawa is upping this year's budget for the Department of National Defence by $9.3-billion. That and existing spending from other departments will push defence-related expenditure to $62.7-billion for 2025-26 – 2 per cent of GDP, as per the requirements of the North Atlantic Treaty Organization.
Never mind that the rest of NATO now wants to meet U.S. President Donald Trump's demand of 5 per cent. The fact that we, the laggard, finally got our act together and came up with such a bold plan to get to 2 per cent is good news.
Now for the unglamorous part: There's no magic money tree. Defence can't surge to $62.7-billion and leave everything else untouched.
The reality is, unless there is something Mr. Carney is not telling us, getting to the 2-per-cent target is going to be hard and uncomfortable.
The problem isn't the size of Ottawa's $490-billion budget – it's where that money is already going. Most of it is locked up in transfers to individuals and other governments, and almost none of it is politically or legally touchable.
I wrote about this issue in The Globe and Mail more than a year ago. Pardon me if I'm repeating myself a little, but the situation hasn't changed and will never change.
Roughly a quarter of federal spending flows directly to Canadians through programs such as Old Age Security, the Guaranteed Income Supplement, Employment Insurance and the Canada Child Benefit. Another 20 per cent heads straight to the provinces through the Canada Health Transfer and the Canada Social Transfer to fund health care and social services. Then there's equalization: $26.2-billion this year, constitutionally enshrined.
And let's not forget interest on the national debt, which rings in at $49-billion. No wiggle room there.
After those are accounted for – along with other assorted transfers and programs such as money to the territories and Indigenous peoples – Ottawa is left with about $130-billion in 'Operating Spending.' Out of that, almost $40-billion is already committed to the military.
Which leaves us with an uncomfortable fact: Out of nearly half a trillion dollars in federal spending, just $90-billion is truly discretionary – available for cuts, trims or efficiencies.
And now, the Prime Minister wants to boost military spending by $9.3-billion. Easy, right?
Cut the entire CBC? That covers a fraction of the target. Shutter every national park? Axe the federal justice system? Pull funding from Olympic athletes and sports? Abandon every federal dollar of scientific and medical research?
How is this extra military spending to be accomplished? Mr. Carney did suggest some creative accounting on Monday, moving the coast guard to the defence department, presumably to redefine some non-defence budget as defence. So, sure, some of the $9.3-billion could come out of existing spending.
But Mr. Carney didn't exactly elaborate on the accounting on Monday, and let's remember, this government hasn't put out a budget.
Call me cynical and uncreative, but from where I'm standing and given what we know right now, we're looking at some combination of ugly options.
The first is to raise taxes. Set aside for a moment the promised tax cut coming for middle-income households. The Liberal Party will have a hard time convincing Canadians that higher taxes are necessary – especially when they campaigned on the opposite.
The second option is to borrow more and pile it onto an already ballooning national debt, erasing any realistic hope of a balanced budget for the foreseeable future. This option also drives up total debt-servicing costs.
The third is to cut from existing spending in other areas.
None of these is good.
These options might not manifest visibly. We might not see a new 'weapons tax.' We might not see war bonds. We might not hear Mr. Carney announce one day that, say, this agency or Crown corporation could have gotten a $100-million budget increase instead of $50-million if not for the defence spending.
But make no mistake: The number of dollars the government has is finite, and every one has to come out of somewhere.
It's not easy for a leader to up defence spending. It's never been a popular thing in this country. So, kudos to Mr. Carney for stepping up.
But now he has an even harder task. Mr. Carney needs to have an honest conversation with this country about where all the money is going to come from.
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