CANADIAN FY 03-04 BUDGET: DEFENSE CONTINGENCY

UNCLAS OTTAWA 002461

SIPDIS

SENSITIVE

DEPT FOR EUR/RPM, EB/IFD, WHA/CAN AND WHA/EPSC
TREASURY FOR OASIA/IMI - HARLOW, MATHIEU
USDOC FOR 4320/MAC/ON/OIA/JBENDER
PARIS ALSO FOR USOECD

E.O. 12958: N/A
TAGS: MCAP PGOV EFIN ECON ETRD CA
SUBJECT: CANADIAN FY 03-04 BUDGET: DEFENSE CONTINGENCY
FUNDS USED FOR ISAF


1. This message is sensitive but unclassified. Please
treat accordingly.


2. Summary: Finance Minister Manley has asked government
departments to cover unforeseen expenditures in 2003 from
reallocation of existing funds. Canada is using C$200
million in "contingency reserve" funds earmarked for
defense expenditures (over and above the C$800 million
increase budgeted for FY 2003/04) to cover its
participation in ISAF. End summary.


3. (SBU) Front-page headlines in Canada's major
newspapers on August 27 erroneously stated that Finance
Minister Manley planned to cut $200 million from defense
spending and C$130 million from foreign aid. Senior
sources at the Department of Finance said this was
inaccurate. They explained to Mission officers that
Manley is committed to maintaining a balanced budget and
in February confirmed that government departments were
expected to do the same; that unforeseen expenses would
be covered from reallocation of existing funding. His
office also confirmed "Defense will get what it needs for
Afghanistan."


4. (SBU) The FY2003-04 federal budget increased defense
spending by C$800 million over the next 3 years, with an
additional C$200 million earmarked for contingency
expenditures in FY2003-04. Manley expects the
Department of Defense to use its $200 million
contingency reserve to cover costs associated with
sending troops to Afghanistan.


5. (SBU) The same holds true for foreign aid: the
Canadian International Development Agency (CIDA) has not
had its funding reduced; it has been asked to stay within
its initial (generous) budget.


6. (SBU) Comment: The newspaper headlines did not seem
credible. Canada's federal government still enjoys a
budget surplus and the GOC had not indicated any need to
dig into its emergency funds or the money set aside for
fiscal prudence. Therefore, spending cuts, especially
in defense and foreign aid, which comprise a relatively
small share of the federal budget, made no sense.
Finance officials confirmed our suspicions. End
Comment.

Cellucci