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UPDATE 3-Canada plans military spending boost, addressing U.S. pressure

(Adds analysis, reaction, quotes, details, background)

By David Ljunggren and Leah Schnurr

OTTAWA, June 7 Canada on Wednesday unveiled plans for one of the biggest hikes in military spending in its recent history, acting less than two weeks after U.S. President Donald Trump demanded that NATO members ramp up defense expenditures.

Defence Minister Harjit Sajjan, unveiling a 20-year policy review that had been in the works for months, said the armed forces budget would jump by 73 percent to C$32.7 billion ($24.2 billion) in 2026/27 from C$18.9 billion in 2016/17, with the biggest increases coming in later years.

The Liberal government made the announcement a day after Foreign Minister Chrystia Freeland said Canada would have to play a larger global role as the administration of U.S. President Donald Trump retreated from multilateralism.

Sajjan told reporters the policy would result in "a Canada that is strong at home, secure in North America and engaged in the world."

Canada and the United States are traditionally close allies but the relationship has become strained under Trump, who was elected on a promise to "put America first."

David Perry, defense analyst at the Canadian Global Affairs Institute, said he was pleasantly surprised by the spending plans. The center-left Liberals have traditionally been skeptical about major military purchases.

"They've promised ... to spend money on a lot of needed priorities, most of it on capital investments, which is where I think the real priorities were," Perry said by phone.

Sajjan said the boost would take total defense expenditures to 1.4 percent of GDP by 2024/25 from 1.2 percent now. Other estimates put Canada's spending at closer to 1.0 percent.

North Atlantic Treaty Organization members have committed to spend 2 percent of GDP on the military, a target few meet. Trump last month upset NATO leaders by insisting they commit more funds and also by not personally affirming the alliance's mutual defense doctrine.

Asked whether he thought Trump would be satisfied, Sajjan said: "This defense policy is for Canada".

NATO Secretary General Jens Stoltenberg said the announcement would "ensure Canada has the armed forces and the key capabilities that the Alliance needs".

Ottawa will hold an open competition to buy 88 advanced fighters to replace its fleet of 77 CF-18 planes, more than the 65 new jets the previous Conservative government had planned.

The defense review said the jets would need to operate seamlessly with planes of Canada's allies and estimated the cost at between C$15 billion to C$19 billion.

Ottawa said last year it wanted to buy 18 Boeing Corp Super Hornets as an interim measure but has since threatened to scrap the plan unless the U.S. firm drops an anti-dumping challenge against planemaker Bombardier Inc.

Potential winners include rival jet makers, such as Lockheed Martin Corp, Dassault Aviation SA, Airbus SE and Saab AB, analysts said.

Sajjan declined to comment when asked whether the spending would result in a larger budget deficit than the Liberals are already forecasting.

One major uncertainty is that the Liberals may not be in power in a decade's time. They took office in 2015 and Canadian governments usually last between eight and 10 years.

Indeed, when in government, the Conservatives promised in 2008 to boost defense spending to C$30 billion by 2027/28 from C$18 billion in 2008/09. But by end of 2014/15, their last full year in power, the budget had only edged up to C$20.1 billion.

"It's really really easy to backload promised spending, especially when you're able to backload it into the 2020s," said Kim Richard Nossal, a political studies professor at Queen's University in Kingston who specializes in defense procurement.

The Liberal government also confirmed longstanding plans to buy 15 new ships and said the cost would rise to between C$56 billion and C$60 billion. Conservatives had put the cost at C$26.2 billion.

The Conservatives said they were skeptical the Liberals would be able to deliver on their promises.

"We learned that the majority of the funding announced today won't be available until after the next election and the government won't tell us where it is going to come from," said party defense spokesman James Bezan.

($1 = 1.3514 Canadian dollars) (Reporting by David Ljunggren and Leah Schnurr; Editing by Denny Thomas and Tom Brown)

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