Canadians won’t know the full details of the federal government’s Defence Industrial Strategy for weeks, but thanks to Budget 2025 they now know how much it will cost.
“Every company in the country should have a defence strategy because there’ll be significant investment over the coming years.”
François-Philippe Champagne
Minister of Finance
Along with a resetting of the global order has come renewed interest in defence spending. Prime Minister Mark Carney let his intentions be known in June when the Canadian government promised NATO it would spend five percent of its GDP on defence by 2035.
Carney’s first budget has paved a clear path to that target, with billions in innovation commitments supporting direct investment, dual-use technology, improved procurement, and new agencies.
The 2025 budget earmarks $81.8 billion over five years to “rebuild, rearm, and reinvest” in the Canadian Armed Forces (CAF), including $9 billion announced by the Prime Minister in June. One component of this commitment is the long-awaited Defence Industrial Strategy (DIS), which has been allocated $6.6 billion to improve access to capital, drive research and innovation, and bolster domestic supply chains in the sector, as well as grow Canada’s stockpile of critical minerals. While the strategy’s details have yet to be announced, its breadth is shown in the hundreds of millions of dollars allocated for quantum computing programs.
The Development Bank (of Defence)
The budget teases out a sampling of DIS investments ahead of its official reveal. Chief among these is a $1-billion commitment to the Business Development Bank of Canada (BDC) to create a new Defence and Security Business Mobilization Program.
The Crown corporation’s new program will provide loans, venture capital, and advisory services to help small and medium-sized businesses contribute to Canada’s defence and security capabilities. BDC president and CEO Isabelle Hudon told BetaKit back in August that the bank was gearing up to serve the country’s defence tech sector in “a less shy” and “more aggressive way.”
Matthew Lombardi of defence newsletter The Icebreaker told BetaKit that the new program is “precisely” the kind of non-dilutive and co-investment funding needed to bridge the procurement gap in the sector.
Eliot Pence, founder and CEO of Ottawa-based defence tech startup Dominion Dynamics, told BetaKit that he thinks the $1-billion commitment will provide benefits beyond its direct output.
“What should happen is that it catalyzes an industry where other banks can lend [to defence tech],” Pence said. He noted, however, that some Canadian banks still need to change their policies to allow defence lending.
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The DIS also proposes broad financial earmarks for future dual-use tech programs, which refers to technologies that can benefit both civilian and military markets. Innovation, Science and Economic Development (ISED) Canada has been given $656.9 million over five years to develop and commercialize dual-use technologies in the aerospace, automotive, marine, cybersecurity, AI, biodefence, and life sciences industries.
Meanwhile, the quantum industry gets its own $334.3-million commitment 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 “anchor the Canadian quantum industry in Canada and unleash quantum for defence.”
Canada’s AI minister Evan Solomon has been teasing targeted federal support for quantum innovation. Industry groups like Quantum Industry Canada have asked the feds for a renewed national quantum strategy that includes a direct investment vehicle and policies that retain quantum intellectual property in Canada.
Procurement is here, BOREALIS is real
The Department of National Defence (DND), ISED, and other industries will receive $68.2 million over three years through the DIS to establish the Bureau of Research, Engineering and Advanced Leadership in Innovation and Science (BOREALIS). While details on the bureau’s mandate are not outlined in the budget, it was one of the key policy recommendations of the Council of Canadian Innovators (CCI) industry group to “drive Canadian technological sovereignty.”
CCI recommended that BOREALIS “be governed with private sector leadership, empowered to co-develop technologies with Canadian firms, and mandated to deliver economic and security spillovers for Canada.” Lombardi said the inclusion of BOREALIS in the budget is akin to a Canadian version of the United States’ Defense Advanced Research Projects Agency (DARPA).
In a press conference, Finance minister François-Philippe Champagne said that the budget’s defence investment is more than just hardware and software. He added that the budget is using research and development and BOREALIS to “make Canadian industry prosper.”
“Every company in the country should basically have a defence strategy, because there will be significant investments made over the coming years, not just us, but the G7, [and] the NATO countries,” Champagne said.
The budget also provides some fiscal clarity on the Defence Investment Agency (DIA), which Prime Minister Mark Carney revealed last month with a mandate to overhaul 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 capacity for the security clearance program behind defence contracts.
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The DIA aims to centralize and speed up procurement review and approval for defence contracts valued at over $100 million.
Transport Canada has been provided $1 billion to create the Arctic Infrastructure Fund, which will invest in major transportation projects in Canada’s North, including airports, seaports, roads, and highways with dual-use applications. Pence, whose company does work in the Arctic, called the commitment “table stakes.”
“You can’t do anything in the Arctic without infrastructure,” Pence said.
The Arctic has been a key geographic focus for the burgeoning Canadian defence tech industry as melting ice reveals alluring new trading routes that place the country’s continued control over the region into question.
Digital (defence) infrastructure
The 2025 budget also features tens of billions of dollars in other commitments that could have an impact on Canada’s innovation economy. At the top level, DND, the CAF, and other agencies will receive $10.9 billion over five years to upgrade their digital infrastructure in areas like cyber defence. Another $17.9 billion over five years has been allocated to expand Canada’s military capabilities, including investments in “counter-drone” capabilities.
Under the DIS, the DND will also receive $182.6 million over three years to establish a sovereign space launch capability. It’s unclear if this funding will support a new publicly owned spaceport, or lean on commercial spaceports being built by companies in Atlantic Canada like Nordspace or Maritime Launch Services. Nordspace CEO Rahul Goel called the commitment “absolutely massive in its significance.”
“For the first time in our nation’s history, we have received an unambiguous and unequivocal signal that Canada is ready to become a true spacefaring nation,” Goel said. “NordSpace is prepared to be of service to our great nation with our end-to-end integrated launch, spaceport and satellite capabilities entirely manufactured in Canada.”
According to Lombardi, the spaceport and counter-drone investments felt like “market-making language.” He added that the budget “explicitly called out where Canada will spend where allies have gaps,” noting other investments in armoured vehicles, long-range strike capabilities, and domestic ammunition production.
The DIS also outlines $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 stockpiling mechanism.
Lombardi said he’s “very bullish” on the budget’s commitments to move “real money” into defence, but is awaiting the execution details that will come from the full release of the DIS.
The budget does not project how over $71 billion in new spending figures into Canada’s five-percent NATO spending promise, but says Canada will invest 3.5 percent of GDP by 2035 while the remaining 1.5 percent is dedicated to investments made by all levels of Canadian government, including provincial and municipal. Canada most recently reported spending $62.7 billion on defence, which hit NATO’s two percent benchmark.
Feature image courtesy Mark Carney via LinkedIn.