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Defence Budget and Spending

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Posted Wed, 31 Dec 2025 - 15:40

Following the Money

In 2025, Canada committed to its largest increase in defence spending since the Korean War. The federal government announced $84 billion in new defence funding over five years, with a target of reaching 3.5% of GDP in core military spending by 2035. The Department of National Defence budget is projected to rise from approximately $34 billion in 2024-25 to $48 billion in 2025-26—a 38% year-over-year increase.

These numbers are significant. They represent choices about what Canada values and how it allocates scarce public resources. But understanding defence spending requires looking beyond headline figures to ask more fundamental questions: Where does the money actually go? How much of it gets spent as planned? What do Canadians get in return?

This article does not argue for or against any particular level of defence spending. It attempts to illuminate how defence budgets work, where the money flows, and what questions citizens might reasonably ask when evaluating these expenditures.

Part One: The Budget Numbers

Current Spending

For fiscal year 2024-25, the Department of National Defence received approximately $34.6 billion in total authorities. This represents about 6.7% of total federal spending ($514 billion) and makes DND one of the largest federal departments by budget.

When Canada reports defence spending to NATO, it includes expenditures from other government departments beyond DND:

The 2% Target and Beyond

NATO members agreed in 2014 to spend at least 2% of GDP on defence. For a decade, Canada consistently fell short, spending between 1.0% and 1.4% of GDP. At the July 2024 NATO Summit, Canada committed to reaching 2% by 2032. In June 2025, following intense pressure (including from the United States), Canada announced it would reach 2% in 2025-26—years ahead of schedule.

The government achieved this through several mechanisms:

New spending: $9 billion added to the 2025-26 defence budget
Organizational transfer: The Canadian Coast Guard moved under DND
Broader counting: Inclusion of more OGD spending eligible under NATO definitions
New targets: Commitment to reach 3.5% of GDP by 2035

The total planned defence spending for 2025-26 now exceeds $62 billion, with approximately $48 billion under DND and $14.6 billion under eligible OGDs.

Long-Term Commitments

Canada's 2024 defence policy, "Our North, Strong and Free," outlined:

$8.1 billion in new spending over 5 years
$73 billion over 20 years
Planned capital spending of $322.9 billion over 20 years (2024-25 to 2043-44)

The November 2025 budget added $84 billion over five years—described as the biggest short-term cash infusion for the military since the Korean War.

Part Two: Where Does the Money Go?

The Budget Breakdown

Defence spending divides into several major categories. Historical patterns show:

Personnel Costs

The Canadian Armed Forces has an authorized strength of approximately 100,000 Regular Force and Reserve members. Currently, it's short by an estimated 16,000 personnel—meaning the force can't fill all its positions even at current funding levels.

Personnel costs include:

Base pay and allowances
Benefits (health care, dental, housing assistance)
Training costs
Posting and relocation expenses
Pension contributions

As one analysis noted: "A highly skilled individual possessing the physical and mental attributes necessary to prevail in combat alongside fellow humans and trusted autonomous systems will be very competitive in the employment market." Military salaries must compete with civilian alternatives, and the specialized skills the CAF requires are increasingly valuable in the private sector.

Operations and Maintenance

The roughly 25% spent on operations covers:

Fuel for ships, aircraft, and vehicles
Ammunition for training
Maintenance and repair of equipment
Domestic and international exercises
Deployed operations (Latvia, Ukraine support, Arctic sovereignty)

A persistent challenge: operations budgets are often raided to cover cost overruns elsewhere or to meet short-term political priorities. This can result in reduced training, deferred maintenance, and declining readiness—problems that accumulate over time but remain invisible until equipment fails or personnel lack necessary skills.

Capital Equipment

The capital budget purchases major equipment: fighter jets, warships, armoured vehicles, helicopters, drones, and weapons systems. This is where the most dramatic cost escalation and schedule delays occur.

NATO has a secondary target: members should spend at least 20% of their defence budget on major equipment. Canada has struggled to meet this target historically but projects exceeding it in 2025-26 due to major procurement programs.

Part Three: The Procurement Problem

Chronic Delays and Cost Overruns

Canada's defence procurement system has been described by experts as "fundamentally broken." Major programs routinely experience:

Multi-year delays from original schedules
Cost increases of 100-400% from initial estimates
Capability gaps as old equipment wears out before replacements arrive

In 2020, the Department of National Defence identified more than 100 procurement projects facing delays. These included not just headline programs like fighter jets and warships but also basic equipment like machine guns and engineering vehicles.

Case Study: The Surface Combatant Ships

The Canadian Surface Combatant (now River-class Destroyer) program illustrates the pattern:

Year

Estimated Cost

Ships Planned

2008

$26.2 billion

15 ships

2017

$56-60 billion

15 ships

2019

$69.8 billion

15 ships

2021

$77.3 billion

15 ships

2022 (PBO)

$84.5 billion

15 ships

2025 (estimated)

$100+ billion

15 ships

Original delivery: First ship in 2026 Current expectation: First ship in early 2030s, final ship by 2050

The Parliamentary Budget Officer estimated the total life-cycle cost (acquisition, operations, sustainment, disposal) at $306 billion over 65 years.

For comparison: In the early 1990s, Canada acquired 12 Halifax-class frigates for $4.3 billion total—approximately $700 million per ship in 2025 dollars. The current program projects roughly $7 billion per ship.

Some of this increase reflects genuinely more capable vessels. Some reflects inflation over decades of delay. Some reflects the premium of building in Canadian shipyards. And some reflects procurement dysfunction.

Case Study: Fighter Jets

Canada's CF-18 fighter jets entered service in 1982. The original plan was to replace them by approximately 2020.

The F-35 Saga:

2010: Harper government announces intent to purchase F-35s (sole-source)
2010: Auditor General identifies "troubling" problems in defence procurement
2011: Federal election features F-35 debate; Conservatives win majority
2012: Auditor General finds government understated F-35 costs by billions
2012: Government "resets" competition, promises open process
2017: Trudeau government launches competitive process
2023: Canada selects... the F-35 (after 13 years)
2025+: First deliveries expected

Cost estimates have evolved from initial claims of $9 billion acquisition plus $18 billion lifecycle to current projections of $19 billion acquisition plus $70+ billion lifecycle.

Meanwhile, Canada spent over $1 billion keeping the 1980s-vintage CF-18s flying past their expected service life, and the RCAF's fighter force was described as "in crisis" with low morale, departing pilots, and maintenance shortages.

Why Does This Happen?

Multiple factors contribute to procurement dysfunction:

Political interference: Governments of all parties have used defence contracts to reward regions, support favoured industries, and avoid difficult decisions. The result is sub-optimal outcomes and delayed timelines.

Changing requirements: Military planners revise specifications during lengthy procurement processes. Each change ripples through contracts, adding time and cost.

Industrial policy goals: Canada often requires defence contractors to provide "Industrial and Technological Benefits" (ITB)—essentially, domestic economic spinoffs. While this creates Canadian jobs, it can add costs and complexity compared to buying equipment off-the-shelf from established foreign suppliers.

Bureaucratic complexity: Defence procurement involves multiple departments (DND, Public Services and Procurement Canada, Innovation/Science/Economic Development), each with different priorities and processes. Coordination failures are common.

Risk aversion: Officials are penalized for procurement failures but rarely rewarded for timely, efficient purchases. The incentive structure favours elaborate processes and multiple reviews rather than decisive action.

Capability atrophy: Years of underinvestment left both the military and Canadian industry lacking capacity. Shipyards had to be rebuilt essentially from scratch. Expertise was lost. Ramping back up takes time and money.

Part Four: The Gap Between Plans and Reality

Lapsed Appropriations

A consistent pattern in Canadian defence spending: Parliament approves money that DND doesn't actually spend. This "lapsed" funding then gets "reprofiled" (moved to future years).

Under "Strong, Secure, Engaged" (the 2017 defence policy), the gap between planned and actual capital spending totalled $18.5 billion over 2017-18 to 2023-24. That's money that was supposed to buy equipment but didn't.

The Parliamentary Budget Officer has noted this pattern continues: "Previous PBO analyses of DND's capital spending plans have shown that actual expenditures have consistently fallen short of projected amounts."

This creates a problematic cycle:

Government announces ambitious spending plans
Procurement delays prevent money from being spent
Funding lapses and gets moved to future years
Future budgets appear larger on paper
The gap between announced spending and actual capability widens

The PBO vs. DND

The Parliamentary Budget Officer and the Department of National Defence often disagree about spending projections.

In July 2024, PBO predicted:

Canada's five-year average defence spending would be 1.44% of GDP
Expenditures would peak at 1.49% in 2025-26
The government's forecast of reaching 1.76% would not be met

PBO applies a 25% discount to capital spending forecasts based on "high likelihood of delays" and historical lapsed appropriations.

DND argues PBO uses different GDP calculations and doesn't account for all eligible spending. Both are technically correct—they're measuring different things. But the disagreement highlights how "defence spending" is not a simple, objective number.

What Does 2% Actually Buy?

Reaching the NATO 2% target is presented as a major achievement. But the target measures input (money spent), not output (military capability). A country could reach 2% by:

Buying expensive equipment that arrives late and performs poorly
Increasing salaries without growing the force
Funding cost overruns on delayed projects
Including spending that doesn't meaningfully improve military capability

Conversely, a country spending 1.5% efficiently might field a more capable force than one spending 2.5% wastefully.

This is why some analysts argue Canada should focus less on hitting arbitrary percentage targets and more on identifying what capabilities are actually needed and procuring them effectively.

Part Five: Industrial Benefits and Domestic Production

The Shipbuilding Strategy

In 2010, Canada launched the National Shipbuilding Strategy (NSS) with goals beyond military capability:

Rebuild domestic shipbuilding capacity
Create long-term jobs in Halifax and Vancouver
Develop a strategic industrial capability

Two shipyards were selected:

Irving Shipbuilding (Halifax): Combat vessels (Arctic patrol ships, surface combatants)
Seaspan (Vancouver): Non-combat vessels (joint support ships, Coast Guard)

Later, Davie Shipyard (Quebec) was added for additional work, including a second polar icebreaker.

The strategy has created jobs and rebuilt industrial capacity. It has also resulted in ships costing significantly more than comparable vessels built elsewhere. The PBO calculated Canadian shipyard labour costs are 55% higher than US counterparts.

This represents a deliberate trade-off: paying more for domestic production to maintain strategic capability and support regional economies. Whether this trade-off is worthwhile is a political judgment, not a technical question.

Industrial and Regional Benefits (IRBs)

For major defence contracts, Canada traditionally required contractors to provide Industrial and Regional Benefits (now called Industrial and Technological Benefits or ITBs) equal to the contract value. If Canada buys $10 billion in equipment, the contractor must invest $10 billion in Canada.

These requirements can create Canadian jobs, develop domestic capabilities, and build relationships between Canadian and foreign defence firms. They can also:

Add costs to contracts
Limit competition (fewer firms willing to bid)
Result in sub-optimal offset investments
Delay procurement as benefit packages are negotiated

For the F-35 program, traditional IRB requirements were waived—a decision Foreign Minister Joly later said meant Canada "didn't get enough" industrial benefits. This illustrates the tension between acquiring equipment quickly/cheaply and maximizing domestic economic return.

The Defence Industrial Base Question

Canada faces a fundamental choice about its defence industrial base:

Option A: Buy off-the-shelf

Purchase proven equipment from allied nations
Lower cost, faster delivery
Less domestic economic benefit
Dependence on foreign suppliers for maintenance and upgrades

Option B: Build domestically

Higher costs, longer timelines
Creates domestic jobs and industrial capacity
Strategic autonomy for maintenance and modification
Develops skills and technology with potential civilian applications

Option C: Hybrid approach

Buy foreign designs, build domestically (current shipbuilding approach)
License production or final assembly in Canada
Requires case-by-case evaluation

Canada has generally chosen Option C, with results that satisfy neither pure efficiency advocates nor industrial policy enthusiasts.

Part Six: What Are We Buying?

Major Current Procurements

Program

Description

Status

Cost (Current Est.)

F-35 Lightning II

88 fighter jets

First deliveries expected 2026+

~$19B acquisition, $70B+ lifecycle

River-class Destroyers

15 warships

Construction started 2025, first delivery early 2030s

~$100B+ (15 ships)

Arctic Offshore Patrol Ships

6 ice-capable patrol vessels

3 delivered, 3 under construction

~$4.3B

Joint Support Ships

2 naval replenishment vessels

Under construction at Seaspan

~$5.2B+

P-8A Poseidon

Up to 16 maritime patrol aircraft

Announced 2023

TBD

MQ-9B Reaper

11 remotely piloted aircraft (drones)

Announced 2023

TBD

Polar Icebreakers

2 heavy icebreakers

Expected early 2030s

~$7.25B

The Timeline Problem

Notice a pattern: most major equipment won't arrive until the 2030s. Meanwhile:

CF-18 fighters are 40+ years old
Halifax-class frigates are 30+ years old and operating 10+ years beyond design life
Victoria-class submarines have availability problems (often only 1 of 4 operational)
Much army equipment dates to the 1990s or earlier

This creates a capability gap. Canada is spending billions on future equipment while operating aging, worn-out current equipment. The gap results from decades of underinvestment combined with procurement delays.

What the Money Won't Buy

Even with increased spending, Canada is not pursuing certain capabilities:

Aircraft carriers: No plans
Nuclear submarines: Considered but not pursued
Strategic bombers: No plans
Ballistic missile defence interceptors: Limited participation in BMD
Large amphibious assault ships: No plans

These choices reflect Canada's strategic posture as a NATO ally rather than an independent great power. Canada relies on allies—primarily the United States—for capabilities it doesn't possess.

Part Seven: The Efficiency Question

Spending More vs. Spending Better

Canada's defence spending challenges aren't solely about the quantity of money. They're also about efficiency—getting value for dollars spent.

Consider: Canada is projected to spend ~$100 billion on 15 surface combatants. The UK is building 8 Type 26 frigates (the same base design) for approximately $15 billion Canadian. Even accounting for differences in configuration and counting methodology, Canada is paying dramatically more per ship.

Similar comparisons hold for other programs. Canadian defence procurement consistently costs more than equivalent programs in allied nations.

Some of this premium is defensible:

Building in Canada rather than buying abroad
Maintaining strategic industrial capacity
Supporting domestic jobs and regional economies
Canadian-specific requirements and modifications

Some is harder to defend:

Bureaucratic inefficiency
Procurement delays that compound costs through inflation
Political interference adding requirements or changing directions
Insufficient expertise to manage complex programs

Reform Efforts

Multiple reviews have recommended defence procurement reforms. Common themes:

Streamline approval processes: Reduce the number of decision points and reviews
Empower DND: Give the military more direct control over requirements
Fixed-price contracts: Shift risk to contractors rather than taxpayers
Off-the-shelf preference: Default to proven solutions rather than custom designs
Industrial policy clarity: Decide whether to prioritize efficiency or domestic production, and be consistent

Governments of all parties have promised reforms. Progress has been limited. The incentives that drive dysfunction—regional politics, risk aversion, competing priorities—persist regardless of which party holds power.

Part Eight: Questions Worth Asking

Citizens evaluating defence budget decisions might consider:

On Overall Spending

What are we defending against? What specific threats justify this level of spending? How likely are they? What happens if we spend less?
What are the alternatives? Could diplomatic, economic, or other tools address the same threats at lower cost? What is the marginal value of additional defence spending versus other priorities?
Who decides? How much input do elected representatives have in defence spending decisions versus military planners and bureaucrats?

On Specific Programs

What problem does this solve? What capability gap does this procurement address? Is that gap real and significant?
Why this solution? Were alternatives considered? Why was this approach chosen over others?
What does it actually cost? Not just the announced budget—the realistic total including cost overruns, lifecycle costs, and supporting infrastructure.
When will it arrive? What is the realistic delivery timeline based on historical performance, not optimistic projections?

On Industrial Benefits

What's the premium? How much more are we paying for domestic production versus buying abroad?
Is it worth it? Do the jobs, industrial capacity, and strategic benefits justify the additional cost?
Who benefits? Which regions, companies, and workers gain from these procurement decisions?

On Accountability

Who is responsible? When programs go over budget and behind schedule, what are the consequences for those who made the decisions?
What did we learn? Are the same mistakes repeated across programs, or is there genuine improvement?

Conclusion: Beyond the Headlines

Defence budget announcements generate impressive numbers: billions of dollars, decades of investment, sophisticated equipment. The reality behind those numbers is more complicated.

Canada has historically struggled to translate defence budgets into military capability efficiently. Money gets announced but not spent. Projects delay for years while costs escalate. Equipment wears out faster than replacements arrive. Industrial policy goals conflict with procurement efficiency.

The massive spending increases announced in 2025 represent both an opportunity and a risk. The opportunity: finally addressing decades of underinvestment and capability gaps. The risk: pouring money into a procurement system that hasn't demonstrated it can spend effectively.

For citizens learning about fiscal governance, defence spending offers lessons about:

The gap between announced budgets and actual outcomes
The difficulty of long-term planning in democratic systems
The tension between efficiency and other policy goals
The importance of accountability and oversight
The challenge of measuring results when the desired outcome (deterrence, security) is inherently hard to quantify

Defence spending will likely remain a major fiscal and political issue for years to come. Understanding how defence budgets actually work—beyond the headlines—is essential for informed democratic participation.

This article is intended as educational context for the Ducklings civic engagement platform. It presents multiple perspectives and does not advocate for any particular policy position.

Appendix: Key Statistics

Current Budget (2025-26)

Total defence spending (NATO-reported): ~$62 billion
DND budget: ~$48 billion
Other Government Departments: ~$14.6 billion
Percentage of GDP: ~2%

Historical Context

1990 (end of Cold War): ~2% of GDP
2014 (NATO Wales Summit): ~1% of GDP
2024: ~1.37% of GDP

Budget Allocation (Typical)

Personnel: ~50%
Operations/Readiness: ~25%
Capital Equipment: ~20%
Infrastructure: ~5%

Major Programs

F-35 fighters: $19B acquisition + $70B+ lifecycle (88 aircraft)
Surface Combatants: $100B+ acquisition, $306B lifecycle (15 ships)
Polar Icebreakers: $7.25B (2 ships)
Arctic Patrol Ships: $4.3B (6 ships)

Personnel

Authorized strength: ~100,000 (Regular + Reserve)
Current shortfall: ~16,000 positions
Contracted services: ~$5 billion annually

Procurement Performance

Capital spending shortfall (2017-2024): $18.5 billion below plan
100+ procurement projects facing delays (as of 2020)
Canadian shipyard labour cost premium: 55% vs. US yards

Consensus

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perspectives

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