#Budget2025 hints at full scope of federal government’s defence agenda

Canadians won't know all the details of the federal government's defense industrial strategy for several weeks, but thanks to Budget 2025, they now know how much it will cost.

“Every company in the country should have a defense strategy because there will be significant investments in the coming years.”

Francois-Philippe Champagne
Minister of Finance

Along with reboot of world order renewed interest in defense spending. Prime Minister Mark Carney announced his intentions in June when the Canadian government promised NATO by 2035 it will spend five percent of its GDP on defense.

Carney's first budget set a clear path toward that goal, with billions of dollars in innovation commitments supporting direct investment, dual-use technologies, improved procurement, and the creation of new agencies.

Budget 2025 includes $81.8 billion over five years to “rebuild, rearm and reinvest” the Canadian Armed Forces (CAF), including $9 billion announced by the Prime Minister. in June. One component of this commitment is the long-awaited Defense Industrial Strategy (DIS), which has committed $6.6 billion to improve access to capital, stimulate research and innovation, and strengthen domestic supply chains in the sector, while increasing Canada's reserves of critical minerals. While details of the strategy have not yet been announced, its breadth is evident in the hundreds of millions of dollars committed to quantum computing programs.

Development Bank (Defense)

The budget provides a sampling of DIS investments before its official release. Chief among these is a $1 billion commitment to the Business Development Bank of Canada (BDC) to create a new defense and security business mobilization program.

The new Crown program will provide loans, venture capital and advisory services to help small and medium-sized businesses contribute to Canada's defense capabilities. BDC President and CEO Isabelle Hudon told BetaKit back in August that the bank is preparing to serve the country's defense technology sector in a “less shy” and “more aggressive way.”

Matthew Lombardi of the Defense Bulletin Icebreaker told BetaKit that the new program is “exactly” the type of non-dilutive and co-investment financing needed to address the sector's procurement gap.

Eliot Pence, founder and CEO of Ottawa-based defense technology startup Dominion Dynamics, told BetaKit he believes the $1 billion commitment will bring benefits beyond its immediate impact.

“What needs to happen is that it will catalyze the development of an industry where other banks will be able to lend [to defence tech]” Pence said. He noted, however, that some Canadian banks still need to change their policies to allow defense lending.

CONNECTED: Isabelle Hudon says BDC is preparing to support Canada's defense technology sector In “more aggressive way”

DIS also proposes broad financial allocations for future dual-use technology programs, which refer to technologies that can benefit both the civilian and military markets. Innovation, Science and Economic Development (ISED) Canada has been allocated $656.9 million over five years to develop and commercialize dual-use technologies in aerospace, automotive, marine, cybersecurity, artificial intelligence, biodefense and life sciences.

Meanwhile, the quantum industry receives its own commitment of $334.3 million under the DIS. Over five years, ISED and other federal agencies will spend $223.1 million to support quantum research and $111.2 million to “establish the Canadian quantum industry in Canada and use quantum for defense.”

Canadian Artificial Intelligence Minister Evan Solomon teased targeted federal support for quantum innovation. Industry groups such as Quantum Industry Canada have asked federal authorities to develop an updated national quantum strategy that includes a private equity mechanism and policies that keep quantum intellectual property in Canada.

Purchase here, BOREALIS is real

The Department of National Defense (DND), ISED and other sectors will receive $68.2 million over three years through DIS to create the Bureau of Research, Development and Advanced Leadership in Innovation and Science (BOREALIS). Although the details of the office's mandate are not set out in the budget, it was one of the key policy recommendations industry group the Council of Canadian Innovators (CCI) with the goal of “ensuring Canadian technology sovereignty.”

The CCI recommended that BOREALIS “be governed by private sector leadership, have the power to co-develop technology with Canadian firms, and be empowered to provide spillover benefits to Canada's economy and security.” Lombardi said the inclusion of BOREALIS in the budget is akin to Canada's version of the U.S. Defense Advanced Research Projects Agency.DARPA).

At a press conference, Finance Minister François-Philippe Champagne said the budget's defense investments are more than just hardware and software. He added that the budget uses research and development and BOREALIS to “ensure Canadian industry continues to thrive.”

“Every company in the country must have a defense strategy because significant investments will be made in the coming years, not only by us but also by the G7 countries.” [and] NATO countries,” Champagne said.

The budget also provides some financial clarity for the Defense Investment Agency (DIA), which Prime Minister Mark Carney revealed last month with a mandate to review military procurement. Public Services and Procurement Canada will receive $30.8 million over four years to establish the DIA, as well as another $52.5 million over five years to modernize and increase the capacity of the Public Services and Procurement Canada Agency. security check program for defense contracts.

DIA seeks to centralize and expedite the review and approval of defense contract procurements valued at more than $100 million.

Transport Canada was awarded $1 billion to create the Arctic Infrastructure Fund, which will invest in major transportation projects in Canada's north, including airports, seaports, roads and dual-use highways. Pence, whose company works in the Arctic, these obligations were called “table stakes.”

“You can't do anything in the Arctic without infrastructure,” Pence said.

The Arctic was key geographic focus for Canada's growing defense technology industry, as melting ice shows tempting new trade routes this is the place of the country constant monitoring over the region is in question.

Digital (defense) infrastructure

The 2025 budget also includes tens of billions of dollars in other commitments that could impact Canada's innovation economy. At the top level, DND, CAF and other agencies will receive $10.9 billion over five years to modernize their digital infrastructure in areas such as cyber defense. Another $17.9 billion over five years was allocated to expand Canada's military capabilities, including investments in “counter-drone” capabilities.

Under the DIS, DND will also receive $182.6 million over three years to build a sovereign space launch capability. It is unclear whether this funding will support a new government spaceport or build on commercial spaceports being built by companies in Atlantic Canada such as Nordspace or Sea launch services. Nordspace CEO Rahul Goel called the commitment “absolutely huge in its significance.”

Investing in the spaceport and anti-drone capabilities was seen as “market speak,” Lombardi said. He added that the budget “makes clear where Canada will spend where allies have gaps,” noting other investments in armored vehicles, long-range strike capabilities and domestic ammunition production.

CONNECTED: Ottawa aims to become Canada's defense innovation hub

DIS is also committing $443 million over five years to Natural Resources Canada and ISED to support the development of “innovative critical minerals processing technologies,” as well as joint investments with Canadian allies in critical minerals projects and a critical minerals accumulation facility.

Lombardi said he is “very optimistic” about the budget commitment to allocate “real money” to defense, but expects implementation details to become known once the DIS is fully released.

The budget does not forecast how the new spending figures of more than $71 billion will fit into Canada's five per cent NATO spending pledge, but it does say Canada will invest 3.5 per cent of GDP by 2035, with the remaining 1.5 per cent going towards investment by all levels of Canadian government, including provincial and municipal. Canada last reported defense spending was $62.7 billion, in line with the NATO benchmark of two percent.

Artistic image courtesy of Mark Carney via LinkedIn.