By J.L. Granatstein, November 22, 2024
The state of the Canadian Armed Forces is well known. The ranks are depleted. The equipment is obsolescent. Vehicles sit unrepaired, ships are awaiting updates, and pilots are not available to fly aged aircraft. Procurement is a mess, so much so that it takes a decade or more to replace a pistol. Our allies are scornful, not least the Americans with whom we share the defence of the continent. Our Arctic is essentially undefended except for Canadian Rangers on snowmobiles, armed only with rifles, while both China and Russia are building icebreakers and infrastructure to control an increasingly ice-free ocean.
And the Trudeau government says, without a trace of irony, that it will take until 2032 to reach NATO’s defence spending objective of two per cent of GDP. We should not forget that it has been two decades since Ottawa promised it would meet that level of defence spending! The talk in the West’s capitals is already suggesting that three or 3.5 per cent must be the next goal.
Why the pressure to spend more on defence? That, too, is obvious. Russia is on the march, its brutal invasion of Ukraine continuing since February 2022. China under President Xi Jinping is arming itself rapidly, threatening Taiwan, and building bases across the South China Sea it claims as its own waters. North Korea is sending troops to aid Russia’s war against Ukraine and building ever more powerful missiles while its population starves. Iran is sponsoring terrorism in the Middle East and abroad, aiding Hamas, Hezbollah and the Houthis in their attacks. Our enemies are on the move, and the situation is not promising. It seems that we are in a prewar era, and that is why the Western democracies are rearming.
But not Canada. Here, as Lieutenant General Andrew Leslie, the former commander of the Army and a former Liberal Member of the House of Commons, told Parliament’s Standing Committee on National Defence, “the 2024 defence spend will be less than that of 2023.” There is apparently no more money for defence, and with the United States under Donald Trump intending to reduce taxation (on the rich) and lower corporate taxes, Ottawa will likely need to follow suit to remain competitive. The Conservative Party seems poised to take power in the next federal election sometime in 2025, and it as yet has not announced a defence policy. Its leader, Pierre Poilievre, has not even made a promise to reach NATO’s two per cent goal even though recent opinion polling shows that 53 per cent of Canadians now back increasing defence spending to reach the NATO standard. Our political class seems blind to the realities.
Some history might be useful here. In 1939, Canada had a population of 11 million, a Gross National Product of $5.6 billion, a federal government that spent $680 million, and a national debt of $5 billion. This was a small poor country whose military was allowed to fade away following the First World War.
The Second World War changed all that. The armed forces enrolled 1.1 million men and women. Ottawa’s spending at war’s end was eight times that of 1939 and the GNP was $11 billion. Expenditure on the military was $5 of every $6 Ottawa spent, and at the wartime peak the federal government spent 60 per cent of its $5 billion budget on defence.
How did Ottawa manage this dramatic growth? Taxes rose very substantially on incomes and on corporations, but that was not enough to pay the war’s costs. The government borrowed the money it needed, securing it from its citizens and corporations and its banks, while keeping inflation in check through a strict regime of wage and price controls. The federal debt increased from $5 billion in 1939 to $18 billion in 1945. Government borrowed the money to finance the war effort because winning the war was vital to the nation’s survival.
Today, many believe we are facing the very real prospect of major conflicts in Europe, Asia, and possibly in the Arctic. There are nuclear weapons aplenty and more being developed by unfriendly nations. And Canada, for all practical purposes, is undefended.
The Americans are fully aware of this, with both Republicans and Democrats attacking Canada for doing too little too slowly. The incoming Trump administration will be even more critical of Canadian laxity and rightly so, and we might pay a stiff price for this in tariff hikes and in the coming trade negotiations with Washington. Our prosperity is certainly at stake; our survival may well be at stake if a global war erupts and we are as unprepared as we are today.
We could raise taxes to finance a defence build up, of course, but that would only make the country’s industries even less competitive and frighten off domestic and foreign investors from sinking dollars into an already productivity-challenged nation. Increasing taxes is not going to happen with Washington about to lower its tax rates; far more likely, Canada’s tax rates will be cut substantially.
What to do then? Canada borrowed the money to finance the Second World War, and it could do so again today. Yes, that would raise the nation’s debt, but economists deem the federal financial situation, despite the current debt, to be structurally sound. The US’s federal debt, in contrast, is several times that of Canada’s as a share of the GDP, and Trump’s promised spending plans will likely increase that debt even more.
Happily, interest rates are presently low and inflation is in check. This is a good moment to borrow money to increase the personnel strength of the Canadian Armed Forces, to move quickly to acquire the modern weapons the military needs by speeding up procurement, and to reach our pledged NATO goals.
There are times when history shows us a clear direction on the way a government should act. The current federal government has demonstrated for almost a decade that it is not interested in defence, and so far, the Conservatives have also seemed indifferent. But if and when Poilievre comes to power and must deal with the new administration in Washington, he will quickly become obliged to move forward with the rebuilding of the nation’s defences.
The next prime minister will know that taxes cannot be raised, and if his government has any sense at all, it will quickly discover that there is only one course to follow. Borrow the money. Rebuild the Canadian Armed Forces. Meet the NATO goal. Restore Canada’s credibility with its allies.
J.L. Granatstein taught Canadian history for 30 years and was director and CEO of the Canadian War Museum. He sits on the Macdonald-Laurier Institute’s Research Advisory Board.
