03/26/2015 09:23 EDT | Updated 05/26/2015 05:59 EDT

Defence Costs 'Unsustainable' Over Next Decade: PBO

OTTAWA - The Harper government has built a military that it cannot afford and will be forced to make tough choices in the future, if it sticks with the current funding envelope, the country's budget watchdog said Thursday.

The new assessment by the parliamentary budget office came as debate kicked off in the House of Commons about an expanded and extended war against the Islamic State in Iraq and the Levant, a conflict that opposition MPs were warned this week will last more than a year.

Jean-Denis Frechette, the parliamentary budget officer, says the federal government will need to either pour more money into its defence budget, scale back its ambitions, or do a mixture of both in order to put Canada's military on a sustainable footing.

The Harper government currently spends $21.5 billion on defence — or 1.1 per cent of the gross domestic product.

In order to sustain the existing number of troops, bases, tanks, planes and ships, the budget office says the Conservatives will have to spend about 1.6 per cent of GDP, which would be an increase of at least $3 billion annually.

Defence Minister Jason Kenney did not respond directly to the contents of the report, but told the Commons on Thursday that under the Conservatives the overall defence budget has increased by 27 per cent. However, a defence research report noted last year that the corrosive effect of inflation whittles that down to just seven per cent.

"We've made important investments and most importantly, the men and women of the Forces are able to do the job that we assign to them," Kenney told MPs who were debating the Iraq extension.

Also, he said the government would top up the defence budget on an incremental basis for costs incurred because of the war.

The Conservatives rode to power in 2006 with a promise to dramatically increase the size of the military and to provide it with stable funding after years of lean Liberal budgets.

The defence budget did grow during the Afghan war, but starting in 2011 the Conservatives attacked the federal deficit, reducing the military's appropriation by $2.5 billion on an annual basis compared to what it was projected to be. The effect of most of those cuts kicked in last year.

"Our modelling shows that until 2014, there were sufficient funds to maintain the program," said the report.

"The model shows that it was only with the significant spending increases seen in the latter half of the 2000s that the affordability gap was closed and capability was able to be maintained and to some extent re-built. However, the recent cuts to the defence budget point to an impending affordability gap beginning in this fiscal year."

That affordability gap — or shortfall — runs anywhere between $33 billion and $42 billion over the next decade.

Left addressed, the gap means the military will be forced to thin out the ranks by "several thousand soldiers," close buildings and reduce its capital spending plan, said defence analyst Dave Perry, of the Canadian Defence and Foreign Affairs Institute.

Frechette said, under the current budget structure, the government can afford a military about the same size it had in 1999, at the height of what the Conservatives have often described as the "decade of darkness" under the Liberals.

Joyce Murray, the Liberal defence critic, said the government is being hoisted on its own rhetoric.

"It's very childish to point back and not look at their own record," she said.

The Harper government has been under pressure from NATO allies — notably the U.S. and Britain — to increase defence spending to at least the alliance benchmark of 2 per cent GDP.

Prime Minister Stephen Harper faced criticism during last fall's NATO leaders summit in Wales and defended Conservative budgeting, saying allies could rest assured Canada will spend what is necessary.

"I don't in any area of government set a budget and say we'll spend a certain amount and go out and try to spend it no matter how we can spend it," Harper said. "That’s not how we do business and I'm certainly not going spend on a massive military expansion for the sake of doing so."

But what the PBO report makes clear is that never mind an expansion, Harper cannot even afford the existing force, said Perry.

"What this report is showing is that you need more money to make the status quo work," he said.

It is not the first time the government has been warned that its ambition outstrips its wallet. The Conservatives introduced their marquee defence policy in 2008 with a laundry of equipment needs, including the F-35 stealth fighter.

Internal documents show the ambitious program was deemed unaffordable within three years.

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