A New Era of Military Spending

Canada is set to make a historic investment in its military, not seen since the Korean war. Just last month, Prime Minister Mark Carney announced that Canada will meet the 2 percent target by the end of the current fiscal year, totalling over $9 billion. If achieved, this would mark a significant increase from the current level of roughly 1.3 percent of GDP. This renewed commitment to defence spending reflects not only growing international pressures, such as Canada's NATO obligations, but also recognition of the domestic economic opportunities that could accompany such investment. As government procurement expands to include new technologies, equipment, and infrastructure, Canadian businesses across sectors, from advanced manufacturing to cybersecurity, are likely to see increased demand and opportunities for growth.

The key question is: who will benefit from this? Canada’s defence sector encompasses air and space systems, land, and marine operations. According to Statistics Canada, in 2022, it generated $14.3 billion in revenue from 586 firms. Approximately 408 of those firms were Canadian-owned, collectively accounting for half of the industry’s total sales.
Why is this important to our region? Because Ontario is home to strong manufacturing bases that support areas like combat vehicle production, munitions, and aircraft fabrication and maintenance. In 2022, 54% of total supply chain expenditures across the defence industry were directed to domestic sources.

The Ontario government has also weighed in on investing in Ontario’s defence manufacturing sector, particularly by strengthening its shipbuilding capacity. This will help to support and align with Canada’s National Defence Strategy by providing accessible options for procuring ships domestically. A first-of-its-kind program in Ontario will offer shipbuilders access to non-repayable grants covering up to 50% of eligible costs for projects that enhance the shipbuilding industry’s competitiveness. Ontario is positioning itself to support the shipbuilding sector and contribute to Canada’s defence-building strategy.
While this announcement of federal spending is still in its early stages, and the rollout of government procurement remains to be seen, we can expect a more strategic, Canadian-focused approach that emphasizes “Made in Canada” solutions.

Furthermore, with a significant announcement like this, we can expect the Government of Canada to commit to its goal of doubling defence spending. However, the true test will be whether the government follows through. Canada has consistently been underspending to meet the existing 2% NATO  defence requirement.
Within the province, building on previous investments in the shipbuilding sector, Ontario is positioning its industries to help support Canada’s defence spending commitments. This focus includes bolstering Ontario’s own domestically sourced critical minerals, which are essential to the defence industry. In addition, Ontario is investing $50 million into an Ontario-based venture capital fund focused on technologies that support national defence and related fields such as AI and cybersecurity.
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More spending means more production, but what does this mean for our manufacturing sector? There is little detail, but Canada has generally outlined their plan. For example, $1 billion(accrual basis) has been allocated to expand and enhance military capabilities with a focus on Canadian suppliers. An additional $2.1 billion (reported on both a cash and accrual basis) will be used to strengthen the federal government’s relationship with the defence industry and support the development of a Defence Industrial Strategy (DIS). These measures aim to address immediate barriers, such as delays and gaps in the industry’s ability to equip the Canadian Armed Forces. Recognizing that Canada cannot meet all military needs alone, this strategy also includes plans to deepen our industrial partnerships and expand our military capabilities.

While the news of Canada’s effort is fairly new, we can only wait and see what will come of this. Canada’s effort to bolster defence will not only protect our national security but also indirectly sustain the continued prosperity and safety of the communities our businesses call home. This move will bring renewed opportunity to manufacturers and technology builders eager to contribute to our national defence.