Ottawa is framing the defence investment more as an economic plan than as a plan to defend the country.Chris Young/The Canadian Press
Eugene Lang is interim director of the School of Policy Studies at Queen’s University, where Brigid Waddingham is research assistant to the director.
The conventional wisdom is in. Budget 2025 did not meet the high bar the Prime Minister and Minister of Finance set in their prebudget posturing. Most commentators judged the budget underwhelming on productivity, weak on housing and vacant on affordability.
On national defence, however, the budget could be transformative, though not in the way the current discourse suggests. Defence spending commitments are poised to remake the role of the federal government in the years to come.
There hasn’t been a budget in living memory that focuses more of its numbers and narrative on the defence file. To begin, the budget makes good on the Prime Minister’s pledge to reach the North Atlantic Treaty Organization’s annual defence spending target of 2 per cent of gross domestic product, adding more than $80-billion in new spending over five years.
But that is just the down payment.
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At NATO’s summit last June, Canada endorsed spending 3.5 per cent of GDP on “core” defence by 2035. Unlike Mr. Carney’s predecessors – Stephen Harper and Justin Trudeau – who made big defence commitments at NATO summits and then reneged, he seems serious. “We are protecting Canadians against new threats. I wish we didn’t have to. … It is our core responsibility as a government," Mr. Carney said coming out of the summit.
Single-digit percentage points of GDP may sound trivial. They are not. Canada has not spent 3.5 per cent of its GDP on defence since John Diefenbaker left office in 1963 at the height of the Cold War.
Last year, at 1.4 per cent of GDP, defence consumed nearly 20 per cent of federal program spending. Double those shares and defence becomes the dominant business of the federal government, crowding out other priorities by arithmetic, not ideology.
That is where the real paradigm shift lies.
The cost is sobering. According to one estimate, meeting 3.5 per cent by 2035 would require raising defence spending to about $132-billion in today’s dollars. To put that in perspective, the total cost of the Canada Child Benefit is $30-billion, while transfers to provinces to fund health care total about $55-billion.
How is the federal government going to pay this defence bill? For the next five years, just to sustain increased spending at 2 per cent of GDP, Ottawa will pay through much higher deficits – in excess of $65-billion a year on average. But the budget is silent on the move from 2 per cent to 3.5 per cent of GDP.
Therein rests the central issue. As Canada moves toward the 3.5-per-cent target, the coming defence-funding tsunami will require significant trade-offs in one or more of three areas: substantially larger deficits; major cuts to federal programs or transfers to people and provinces; or higher taxes.
The conversation about trade-offs has not yet begun in Ottawa, much less in the country, but it is coming and the government knows it. That is why the defence investment is being framed more as a jobs plan and a jolt to an unproductive economy than it is about defending the country and our allies.
Public opinion surveys suggest Canadians now support big increases in defence funding. Be that as it may, the “defence consensus” is likely paper thin. Historically, Canadians have not been fans of national defence relative to other social and economic priorities. Defence is almost never a big election issue.
Still, if defence spending can be structured to deliver visible job creation and economic benefits, that conventional Canadian defence skepticism could be eroded. The Carney government seems to be betting on this.
More fundamentally, moving to this level of defence spending implies a redefinition of the role of the federal government – with defence expenditure as the forcing function – into one concentrated much more on its own jurisdictional lanes. “Our core responsibility,” as Mr. Carney put it last June.
This represents a big shift from the Trudeau years, when Ottawa spent most of its intellectual energy and money on social programs – child care, pharmacare and dental care, to name three – largely in provincial jurisdiction. Mr. Trudeau’s government prioritized this agenda out of conviction and calculation, believing it was what Canadians needed and wanted.
In fact, most governments in Ottawa over the past generation have tended to favour expenditure in provincial as opposed to federal jurisdiction, for similar reasons.
Mr. Carney is making a different calculation. He seems to envision a new kind of federal government from what we have seen in the past 30 or 40 years. It remains to be seen whether Canadians will follow him down this path.