With Canada ramping up defence spending at a pace not seen in decades, and further commitments to NATO partners to increase military spending to 5% of GDP (3.5% on core military spending and 1.5% on defence-related infrastructure) by 2035, a new opportunity is silently presenting itself and reshaping the Canadian economy for generations to come (Brewster, 2025).
Modern military spending relies on new technology, developing resilient supply chains and cultivating innovation, especially for dual-use civilian and military applications. This can create an economic boom in the domestic economy. Canada’s defence spending surge will have direct implications for students and future leaders by reshaping jobs, industries and the business landscape.
This surge of defence spending is driven by global instability, especially in the face of rising threats and increasing pressure from the United States to meet spending commitments. Canada only met its longstanding pledge to reach 2% of GDP on core military spending in the 2025-26 fiscal year: 11 years after agreeing to it in 2014 following Russia’s annexation of Crimea (Brewster, 2023). Planned increases would amount to an additional 540 billion dollars of investment in the next decade (Aaronson et al., 2025). The Canadian military has been underfunded for decades, leading to aging equipment across all branches and structural challenges in procurement. The government has established priorities in development of critical minerals extraction, sovereign space launch capabilities, and advancing research and development in aerospace and quantum computing (Canada, 2025). These priorities establish defence spending as more than just a security imperative, but rather a strategic economic response.
The defence budget can be split into 4 categories, with each one providing varying rates of economic return: personnel, operations, capital and infrastructure. Historically, the Department of National Defence has allocated 50% of spending to personnel, 25% to operations and readiness, 20% to capital (planes, ships, and other vehicles) and 5% to infrastructure (Maddison et al., 2024). However, one important detail is the degree to which the money is spent in Canada. 75% of capital spending for defence is sent to the United States (Brewster, 2025), which limits the ability for the defence spending boom to drive economic growth. It is vital to prioritize domestic suppliers to ensure increased defence spending leads to tangible opportunities for Canadians, especially in the face of trade uncertainty with the United States. To this end, the government has pledged 6.6 billion over five years through a Defence Industrial Strategy to procure more military capabilities from Canadian suppliers (Canada, 2025).
“The defence sector in Canada accounts for over 81,200 direct and indirect jobs,” (Canada, 2025) making it a significant contributor to the national economy. Canada’s existing capabilities in the shipbuilding and natural resources sectors paired with strong manufacturing bases in Ontario and Quebec make it uniquely placed to build out a strong sovereign defence industry beyond just collaboration with large American firms. The boost in defence spending will increase demand for careers beyond just engineering, but also business, finance, logistics, data and project management. This will create stable, long-term opportunities for Canadians, with further implications for skills development that can be leveraged in a variety of industries.
Beyond jobs, defence spending can stimulate economic growth through advancements in key technologies such as artificial intelligence and cyber security. As a particularly research-intensive industry, defence investments can spur innovation and drive productivity growth across all industries, which is especially important as Canada continues to lag other G7 economies in productivity. Dual-purpose infrastructure like bridges and ports will expand Canada’s interconnectedness domestically and expand market access internationally as the country pivots to diversify trade. In the past, several countries have had success in catalyzing technological and economic growth by using defence investment. The United Kingdom integrates defence investment into their industrial strategy, using procurement and public-private partnerships to support domestic companies, research institutions and create new export opportunities (Defence, 2025). Canada can follow this model and design defence spending to not only meet security needs but also generate long-term economic value.
It should be noted that these investments do come at a significant cost to the taxpayer. Every dollar invested in defence must be diverted from other public investments or social programs. And with a history of procurement inefficiencies, delays and cost overruns, the government must ensure the money is well spent to encourage growth in the industrial base. There are further risks of limited domestic value creation if Canada continues to invest large parts of its defence budget abroad, without hard commitments on integrating Canadian suppliers and manufacturing. These will be important to watch for as the government releases its Defence Industrial Strategy and seeks to balance security needs and economic efficiency.
Students and young professionals should be eager to see the economic benefits of this defence spending surge, as new career paths emerge in defence and defence-adjacent industries. New opportunities will also be created for entrepreneurs and startups as the government seeks to prioritize domestic suppliers for procurement contracts and creates an opportunity for small firms to develop dual-use technologies that serve both government and commercial markets. Furthermore, engaging with this ecosystem does not require individuals to work directly in defence; many opportunities exist in adjacent sectors like technology, logistics and cybersecurity.
Canada’s rising defence spending marks a significant shift in how tax dollars can shape the economy, extending beyond just security considerations. Defence investment can strengthen innovation and productivity growth, create high-value jobs and support industrial bases while also protecting Canadian interests abroad. However, these benefits can only be realized when it is strategically designed and effectively executed. Without clear objectives and a priority for domestic value creation, increased spending risks losing out on tangible economic outcomes. For students and future business leaders, this moment underlines the importance of understanding how public investment can influence markets, careers and entrepreneurship. Defence spending is more than just a military imperative; it is an economic tool that requires a drastic shift in mindset and meaningful change in outdated procurement policies.
References
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Brewster, M. (2025a, May 27). Carney says Canada is looking to join major European military buildup by July 1. CBC News. https://www.cbc.ca/news/politics/rearm-europe-deal-canada-carney-interview-1.7545303
Brewster, M. (2025b, November 4). Budget touts $81.8B defence investment as a sovereignty “blueprint” but offers only rough fiscal sketches. CBC News. https://www.cbc.ca/news/politics/defence-carney-budget-military-spending-9.6965349
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Maddison, P., Fraser, D., & Cowan, J. S. (2024, April 1). What Spending Two Per Cent of GDP on National Defence Means for Canada. Canadian Global Affairs Institute. https://www.cgai.ca/what_spending_two_per_cent_of_gdp_on_national_defence_means_for_canada
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