armed forces
NATO spending pledge—federal government faces lose-lose situation
From the Fraser Institute
By Grady Munro and Jake Fuss
for Canada to meet the target and maintain it through 2026/27, it must increase defence spending by $57.1 billion
During his recent visit to Poland, when asked about Canada’s responsibility to NATO, Prime Minister Trudeau acknowledged that “there is still more to do.” Indeed, at the Vilnius Summit last summer, the 31 member countries of NATO, which includes Canada, once again pledged to spend a minimum of 2 per cent of their gross domestic product (GDP) on defence. Unfortunately, with no plan to reach this benchmark, the Trudeau government is in a lose-lose situation—accumulate billions more in debt or further disappoint its allies.
According to NATO, the 2 per cent minimum pledge will ensure the alliance’s military readiness and improve the credibility of the organization.
Yet Canada (a founding member of NATO) has failed to reach this target every year since first making this pledge in 2006. In 2022, the latest year of available spending data, Canada’s defence spending measured 1.29 per cent of GDP—fifth-lowest in NATO and well short of the 2 per cent target. And much of Canada’s recent progress towards the spending target is due to a 2017 change in NATO’s definition of “defence spending.” Consequently, Canada has been branded a “military free-rider.”
Although most NATO countries haven’t reached the spending benchmark either, this is changing as the war in Ukraine continues. Seven members spent more than 2 per cent of GDP in 2022, and it’s estimated that 11 members will meet the target in 2023. With more members fulfilling their pledge, Canada likely will fall further behind it allies without higher defence spending. Yet according to the Parliamentary Budget Officer, for Canada to meet the target and maintain it through 2026/27, it must increase defence spending by $57.1 billion.
Unfortunately, due to the Trudeau government’s record-high spending, Ottawa is in a weak fiscal position. From 2014/15 to 2023/24, the federal government increased per-person program spending from $9,064 to $11,395 (adjusted for inflation), primarily by borrowing. As a result, the government has racked up substantial debt and projects more borrowing in the coming years, with no balanced budget in sight.
Without a plan to restrain spending in other areas to accommodate a $57.1 billion increase in defence spending, the government would have to rely on debt to meet the 2 per cent target. This would significantly increase future deficits. In 2023/24 alone, the deficit would increase from $40.0 billion to $55.5 billion. The next several years would also see deficits increase by no less than $13.0 billion. In total, from 2023/24 to 2026/27, cumulative budget deficits would increase from $143.8 billion to $200.9 billion. Such an increase would substantially weaken an already shaky fiscal position.
Despite this, it’s unlikely the Trudeau government would rework its spending to avoid such debt accumulation. Since 2014/15, the majority of spending increases have gone towards expanding or implementing new programs such as the Canada Child Benefit or $10-a-day daycare, rather than core government functions such as defence or justice.
In fact, the government increasingly treats defence as an area to find additional savings. It recently cut the defence budget by $210 million, and it’s rumoured additional cuts of $1 billion are on the way. Clearly, spending on new programs takes precedent for this government, leaving Canada in arrears on its NATO commitment.
If the Trudeau government intends to uphold its recent defence spending pledge, but is unwilling to change its priorities, then Canadians will likely see Ottawa’s mountain of government debt grow even higher. But should the government again fall short of the NATO target, Canada’s reputation among its allies will continue to deteriorate.
Authors:
From the Daily Caller News Foundation
By J.D. Foster
Trump should insist on these measures and order that unless they are carried out the United States will not participate in NATO. If Canada is allowed entry to the Brussels headquarters, then United States representatives would stay out.
Steps Trump Could Take To Get NATO Free Riders Off America’s Back
In thinking about NATO, one has to ask: “How stupid do they think we are?”
The “they,” of course, are many of the other NATO members, and the answer is they think we are as stupid as we have been for the last quarter century. As President-elect Donald Trump observed in his NBC interview, NATO “takes advantage of the U.S.”
Canada is among the “they.” In November, The Economist reported that Canada spends about 1.3% of GDP on defense. The ridiculously low NATO minimum is 2%. Not to worry, though, Premier Justin Trudeau promises Canada will hit 2% — by 2032.
A quarter of NATO’s 32 members fall short of the 2% minimum. The con goes like this: We are short now, but we will get there eventually. Trust us, wink, wink.
The United States has put up with this nonsense from some members since the collapse of the Soviet Union. That is how stupid we have been.
Trump once threatened to pull the United States out of NATO, then he suggested the United States might not come to the defense of a NATO member like Canada. Naturally, free-riding NATO members grumbled.
In another context, former Army Lt. Gen. Russell Honore famously outlined the first step in how the United States should approach NATO: Don’t get stuck on stupid.
NATO is a coalition of mutual defense. Members who contribute little to the mutual defense are useless. Any country not spending its 2% of GDP on defense by mid-year 2025 should see its membership suspended immediately.
What does suspended mean? Consequences. Its military should not be permitted to participate in any NATO planning or exercises. And its offices at NATO headquarters and all other NATO facilities should be shuttered and its citizens banned until such time as their membership returns to good standing. And, of course, the famous Article V assuring mutual defense would be suspended.
Further, Trump should insist on these measures and order that unless they are carried out the United States will not participate in NATO. If Canada is allowed entry to the Brussels headquarters, then United States representatives would stay out.
Nor should he stop there. The 2% threshold would be fine in a world at peace with no enemies lurking. That does not describe the world today. Trump should declare the threshold for avoiding membership suspension will be 2.5% in 2026 and 3% by 2028 – not 2030 as some suggest.
The purpose is not to destroy NATO, but to force NATO to be relevant. America needs strong defense partners who pull their weight, not defense welfare queens. If NATO’s members cannot abide by these terms, then it is time to move on and let NATO go the way of the League of Nations.
Trump may need to take the lead in creating a new coalition of those willing to defend Western values. As he did in rewriting the former U.S.-Mexico-Canada trade agreement, it may be time to replace a defective arrangement with a much better one.
This still leaves the problem of free riders. Take Belgium, for example, another security free rider. Suppose a new defense coalition arises including the United States and Poland and others bordering Russia. Hiding behind the coalition’s protection, Belgium could just quit all defense spending to focus on making chocolates.
This won’t do. The members of the new defense coalition must also agree to impose a tariff regime on the security free riders to help pay for the defense provided.
The best solution is for NATO to rise to our mutual security challenges. If NATO can’t do this, then other arrangements will be needed. But it is time to move on from stupid.
J.D. Foster is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.
Veteran Affairs: the Big Picture
While researching posts for The Audit, I’ll often confront massive datasets representing the operations of agencies with which I’m not in the least familiar. Getting to the point where all the raw numbers turn into a useful picture can take considerable effort, but it’s a satisfying process.
But my first attempts to understand Veteran Affairs Canada (VAC) felt a bit different. I wasn’t just looking at funding and costs, but at the frustrations and suffering of people who, to a greater or lesser degree, were harmed through their service to the country. Here, I hope, is part of their story.
The Audit is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
Veterans Affairs Funding
There are currently more than 460,000 living veterans of the Canadian military. The estimated 2024-25 spending allocation for Veteran Affairs Canada – whose mandate is to serve that population – is around $4.8 billion. The department employs less than four thousand people, which is actually around eight percent fewer than in 2010. Having said that, employment at the distinct Veterans Review and Appeal Board has grown from zero to 161 since 2017.
Besides VAC, the Office of Infrastructure of Canada will spend around $16.5 million on their Veteran Homelessness Program, and Department of National Defence has another $1.6 million budgeted for Community Support for Sexual Misconduct Survivors Program – something for which veterans will also be eligible.
In addition, nearly $2.5 million in grants from various government agencies (including Canada Mortgage and Housing Corporation) was given in 2023 to the Homes for Heroes Foundation, which provides housing and support for at-risk veterans.
Non-government agencies also work to support veterans. In 2023, for instance, the War Amps reported spending $2.7 million on “Service Bureau and Advocacy” and around $700,000 on “Veterans Issues – Special”. The Royal Canadian Legion Dominion Command spent around $1.15 million on veterans services in 2022.
The True Patriot Love Foundation is also a big player in this area, channeling nearly $2.7 million in 2024 to other charities working for veterans. At the same time, more than 30 percent of their own budget came from government sources.
One example of such flow-through funding was the $360,000 given by True Patriot Love to Veterans Transition Network in 2024. In 2023, Veterans Transition Network themselves received another $2.2 million from government along with a total of $1.7 million from other charities.
These kinds of ultra-complex relationships are common in Canada’s charitable sector. The complexity may provide benefits that outsiders can’t easily see. At the same time, knowing whether moving funds through multiple organizations leads to unnecessary inefficiencies and waste is something that would probably require a serious forensic audit.
Veterans Affairs Spending
The largest line items in this year’s VAC spending include $1.6 billion for pain and suffering compensation, $1.34 billion for the Income Replacement Benefit, and $990 million for pensions for disability and death.
In 2023, VAC awarded $41.6 million in external contracts. The largest of those was worth $13.8 million and went to 674725 ONTARIO LTD for “Other Business services not Elsewhere Specified”. 674725 Ontario Ltd. appears to be closely associated with a company called Agilec which, in turn, is a part of Excellence Canada. Here’s how Excellence Canada describes itself:
“Founded in 1992 by Industry Canada as the National Quality Institute (NQI), then rebranded as Excellence Canada in 2011, we are an independent, not-for-profit corporation that is dedicated to advancing organizational performance across Canada.”
In that context, it’s interesting that in 2022, VAC awarded a $159 million contract to a joint venture between WCG International Consultants Ltd. and March of Dimes Canada for “Other Health Services not Specified Elsewhere”.
What makes that interesting? Well, WCG also shows up on an Innovation, Science and Economic Development Canada (ISED) page related to compliance with the Investment Canada Act (ICA). The ICA exists to provide transparency relating to foreign investments in the interest of maintaining a fair and competitive marketplace
This particular page identifies a “U.S.” company called Ancora BidCo Pty Ltd as the new owners of a number of businesses under contract with the federal government. Those businesses include 674725 Ontario Ltd. and WCG International Consultants Ltd.
In fact, Ancora isn’t really a U.S. company at all. They’re actually Australian (as the Pty designation suggests). But their parent company – the private equity firm Madison Dearborn Partners, LLC – indeed operates in Chicago.
There’s no direct evidence to suggest there’s anything dark and nefarious happening here. But it is strange that so many discrete contracts turn out to be awarded to what now amounts to a single foreign for-profit company.
External Contracting Patterns
Has VAC been increasing their reliance on external contracts in recent years? Well, as you can see from this graphic, it’s complicated:
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I don’t know what policy changes drove those two huge spikes in 2014 ($933 million) and 2021 ($2.25 billion). But I can tell you which specific vendors are responsible for most of the increase.
In 2014, three contracts worth a total of $803 million went to Medavie Inc for “Other Business services not Elsewhere Specified”. That was 86 percent of the sum of all VAC contracts from that year.
An eye-popping 98 percent of 2021’s external spending went to just six contracts worth $2.2 billion. Medavie Inc received one of those contracts – worth $228 million. But the other five (worth a total of $1.99 billion) were all joint ventures involving WCG International Consultants Ltd.
Lifemark Health Corp. (currently owned by Loblaw) partnered with WCG for three of those contracts, and March of Dimes Canada had the other two dance slots.
What Is Medavie?
Medavie Inc. is the owner of:
- Medavie Blue Cross
- Medavie EMS Inc.
- Medavie health Services New Brunswick Inc.
- Emergency Medical Care Inc.
Between them, those companies provide health insurance, healthcare training, and emergency management services. They also provide public health program administration – which would probably account for the majority of those contract amounts.
What’s not clear to me is why there’s no record of Medavie receiving any federal contracts of any sort since 2021 – despite the fact that the VAC website tells us that they’re still actively engaged in service provision through Partners in Canadian Veterans Rehabilitation Services (PCVRS).
What Is WCG International Consultants Ltd?
As we’ve seen, WCG is now owned by an American private equity firm and is most certainly no longer not-for-profit. Their website tells us that they’re part of the APM Group, which is an Australian company providing “services in early childhood, youth, employment, insurance, justice, veterans, health, disability, and aged care”.
You’re correct to assume the APM Group is more or less synonymous with Ancora BidCo Pty Ltd. More specifically: all of APM’s publicly-traded shares were bought out in the past couple of months on behalf of Madison Dearborn Partners.
Just one more detail: according to WCG’s website, they’re:
“Partners in Canadian Veterans Rehabilitation Services (PCVRS) coordinates and administers the Rehabilitation Services and Vocational Assistance Program on behalf of Veterans Affairs Canada (VAC).”
Curious about PCVRS? Since late 2022, they’ve been tasked with administering all medical, psycho-social and vocational assistance services on behalf of VAC. However, reports suggest that not everyone has been happy with either accessibility or responsiveness under the new system.
None of this is necessarily inappropriate. And if you’re willing to work at it, you’ll be able to use public information sources to uncover a wealth of related relationships and details. But the vast amounts of money involved, along with the operational complexity make abuse possible. Which means external oversight is a good thing.
Besides all that logistical stuff, what really matters is whether veterans themselves are receiving the support and services they deserve. And that’s a question only they can answer.
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