Another year another budget. Masters of Our Destiny is Canada’s 2026 budget, and with it, we get a nee refresh on the plans for next years spending. Compared to last year, Budget 2026 takes a more grounded and distributive look at Defence, choosing to focus instead on allocating funds and reneweing programs over a laundry list of new things.
Defence is here, but it is far from the focus of the document. Innovation, Investment, and Cultural investments all take a large chunk of the new items present in budget. That doesnt mean there is nothing, nor is that immediately a bad thing either.
With a defence policy coming soon, maybe sooner than some think, a lot of things will naturlaly be pushed into it over being mentioned in budget. That’s what sorts happens in these cases, if there was anything that fot budget at all. Instead, what remains is primarily the fundamental and the larger initatives.
Apaologies as well for being late on this one. As many of you know, I am currently in Ottawa and aadly could not erite right away as I was attending an existing event, and got roped into another meeting eith someone at the last moment.
As per usual, we will be covering the defence space of budget, and keeping the rest to the side. I highly recommend you read through the whole budget though, as I do think it’s important to know for oneself what’s in it.
The Budget
Before we dive into individual investments, lets talk about the bigger picture budget numbers at play here. Budget 2026 reaffirms Canada’s goal to hit 4% of GDP within this decade as we move towards hitting the 5% Defence Investment Pledge by 2035. Over the next five years, the federal government says defence spending will total more than $700 billion on a cash basis, split between core and defence-related spending.
Core defence spending, the part that counts toward NATO’s 3.5% market, goes from $75.1 billion in 2026-27 to $89.0 billion in 2027-2028, $92.2 billion in 2028-2029, $95.8 billion in 2029-2030 and then $99.2 billion in 2030-31, all on a cash basis.
Measured against NATO’s GDP estimate, that comes out to around 2.2% of GDP in 2026-27, rising to 2.6% of GDP in 2027-2028 before remaining steady in every year after. The 4.1% of GDP estimate in budget from 2027-28 onward is made up for by Canada hitting NATO’s 1.5% target on defence-related spending, which runs from $50.4 billion to $58.3 billion over the same years. Core spending never climbs beyond 2.6% heading into the 2031 timeframe, leaving the remaining 0.9% gap to reach 3.5% until after 2030-31. Core alone over the five years comes out to $451.3 billion.
When it comes to new money, again, this budget is fairly light. The defence section adds $755 million net over five years. Of that, $384 million is the first four years of the proposed CSIS expansion outlined in budget and $382 million is new funding to DDI. We also have additional support for Wainwright at $28 million, while the industrial base line actually comes in $39 million in the negative.
Budget 2025, by comparison, put $81.8 billion in cash over five years into the CAF including:
$20.4 billion for recruitment, retention and pay
$19.0 billion to repair and sustain capabilities and infrastructure
$10.9 billion for digital infrastructure and cyber
$17.9 billion for new capabilities
$6.6 billion for the Defence Industrial Strategy
$6.2 billion for defence partnerships, including Ukraine;
$805 million for the Coast Guard, CSIS and PSPC.
Most of what this budget announces for defence is paid for out of money already set aside or DND’s existing budget. So the actual new funding put into defence here is, again, fairly small. Is that a bad thing? Not as much as some might see it. Not much new money doesn’t mean no increase year-on-year, and with a new defence policy in the works, utilizing budget as a be all document for defence funding would be a mistake.
The annexes also add a few more items in tbesmelves. A line of non-announceable measures worth about $5.66 billion over five years covers, among other things, funding decisions related to national security, so there’s defence-adjacent money here that the budget doesn’t itemize. The government also cut its forecast of direct program spending by about $12.4 billion a year, an aggregate adjustment it says is largely to non-defence, non-capital spending.
Anywho, now that we have the basics laid out, what did actually get commitments in budget? Well, The big item capability wise is the Defence Drone Initiative, which gets some sizable love this budget. Budget 2026 commits $2.3 billion over five years starting in 2027-28, on a cash basis, to fund DDI out to 2031-32.
As we said before, a large chunk of that is coming from money already provisioned. On the budget’s accrual table, that new money is split $166M in 2029-30 and $215M in 2030-31. The budget also says that drone production with Ukraine is to be scaled up.
OP REASSURANCE also gets some love and hype in budget including mentions of the 2031 extension, and Canada joining Latvia and Denmark as the third Framework Nation of Multinational Division North. The budget puts $7.6 billion over five years into supporting OP REASSURANCE further, all sourced from DND’s existing resources, so it adds nothing net.
That again doesn't mean it's free, though. The DND has to find that funding from somewhere, so that expansion has to come at the expense of something else, and unfortunately, as many of you I know are seeing in your own units, it feels like a lot of that is going to come from the bottom first. I digress for now though less I say something I shouldn't.
These two round up the major commitments reslly hammered into the defence side. Both are not new in themsleves, nor are either adding much koney thay wasn’t already allocated. Again, a lot of the spending set out for defence is allocation of funds already commited.
Almost all the major platform beyond them in budget are things already announced, with no new funding attached here. That includes the Arctic Over-The-Horizon Radar project, which the budget says will add close to $290 million a year to GDP and support about 2,270 jobs a year from 2026 to 2033. It also includes the nearly $2 billion set out for 190 more ACSV from GDLS-C, taking the fleet from 360 to 550 vehicles.
The Canadian Patrol Submarine Project, which the budget calls the largest defence procurement in Canadian history gets a nod as well along with the Davie deal for six program icebreakers for the Coast Guard, which it is reminded will support nearly 5,000 jobs.
Recap of the year, essentially, but I think it’s importsnt to list what the government puts out there and what capabilities they choose to highkught effort on. It gives a good sense of what they see and wins and what their thought priorities are, because they could have mentioned a lot more.
On the aerospace side, the budget once again reaffirms the commitment to provide up to $2.5 billion in financing through EDC so De Havilland can boost 515 production at its Alberta facilities and shorten delivery times.
Speaking on Industry, while this isn’t new money, Budget 2026 does include some other smaller commitments sprinkled throughout, redirecting up to $2.7 billion of previously announced funding over five years to various initatibes.
Among those is funding for the next phase of Launch the North, which will allow the program to expand into developing a sovereign, Canadian medium-lift capability. Not only that, Budget 2026 takes sovereign launch commitments a step further by commiting to establishing a national rocket propulsion ecosystem and DND-run launch and testing infrastructure to support future launch vehicles.
It’s an excellent, excellent inclusion to Budget to see a critical gap like government-run testing infrastructure, which could be made accessible to all, being committed to in budget. As we said a few days ago, we lack a lot of the testing and evaluation infrastructure needed to support SMEs and startups who lack access to theor own or other private options.
Thats especially true when you’re concentrating that infrastructure in one place, which for Canada is a problem. If you’re a startup or SME in Alberta, the barrier to entry becomes significant if the national facilities available to you are all in Montreal, Toronto, or Ottawa. It is one of the most common complaints I hear from folks out West, that they don’t feel the resources are there for them in the same way.
So I hope that this proposed facility takes accessibility across Canada into consideration, all testing infrastructure really should.
The CSA’s Space Technology Development Program also gets more money, amd we get funding for Phase 2 of the Quantum Champions Program, aimed at keeping Canadian quantum firms in Canada.
Munitions also get a nod in here, with money to finish the GD-OTS nitrocellulose plant in Québec and a commitment to supporting domestic production of high-grade ballistic steel for armoured vehicles, something to think of a bit maybe. The NRC’s drone hub are to be fully stood up as well.
For company support measures, budget is thin. The Canadian Defence Industry Resilience Program is getting recapitalized, but we don't know how much or when it opens. BOREALIS, Defence Industry Assist, export promotion and the RDII are all being extended, without saying for how long. The government also wants specialized secure facilities where industry can work with DND, but where those go is anyone's guess.
The Defence Investment Agency gets no new money in budget, which was expected now that we have C-40 out snd about. Some of the announcwd tax measures do land in the defence ecosystem as well. The Productivity Mega Deduction lets businesses write off machinery, equipment and technology immediately, and the budget explicitly links the defence industrial base as one area it could benefit. SR&ED will now cover testing for regulatory approval or certification and the cost of patents and other IP.
The new Canada Growth Incentive exempts up to $15 million in capital gains on shares in qualifying small private companies, and the exploration credits are extended to 2032.
Speaking more on space and secure connectivity as well, Canada is deepening ties with European programs, partnering with Galileo and the European Space Agency on navigation, exploring cooperation on IRIS², and taking first steps toward a new transatlantic data cable. Of the things in budget, among the funnier ideas is the concept of airport concession proceeds possibly being used to help pay for a sovereign broadband backbone with links to Europe and Asia.
The DSRB also gets a mention in Budget, but it is mainly just a recap of its’s existence and status. Its articles are to be signed in Luxembourg on November 30. More importantly than them though, the budget also starts the process of merging BDC and EDC into a single federal development bank. A special board will oversee the transition and existing products aren't going anywhere in the meantime, but we don't have a name, a timeline or any savings figures yet.
The Canadian Commercial Corporation in this scenario is also not spared, as the government intends to make it a subsidiary of EDC. The Canada Account, which EDC runs for deals in the national interest, is also getting a higher limit and faster approvals for strategic deals, though budget doesn't say what the new limit is.
Basically, BDC and EDC are being merged into a single development bank, and with the CCC sitting under EDC, that bank would end up covering both financing and Government-to-Government sales. For industry this means one organization to support ongoing funding initatives as well as to support the facilitation of defence exports abroad, compared to the existing structure.
Is that better? I think so. EDC and BDC while seperate organizations have the overlap when it comes to support companies in the export chain, which is where we want to start to see movement. Merging them into a larger bank, and putting Government-to-Givernment sales will not only hekp industry better manage and collaborate on existing funds and export opportunities, but also provides our allies with a single entity to help support their acquisition of Canadian products, versus the current system of having to run and deal with multiple, seperate organizations.
Canada also intends to join the EU’s €90 billion Ukraine Support Loan, with up to $61.9 million over four years from 2027-28 and $109.2 million after that going to Global Affairs to support Canada’s participation.
On Infrastructure the largest defenxe-relatex i8tem is the Mackenzie Valley Highway, which the budget proposes to fully fund. A new major projects management entity, at $187.4 million over five years, will start with this highway and the Taltson Hydro Expansion.
The Grays Bay Road and Deep Water Port, is mentioned but gets no new money. It’s still under Major Projects Office review, with construction targeted for late 2029. The Arctic Economic and Security Corridor and Port of Churchill Plus also get nothing new.
There's a handful of smaller northern items too. The biggest is $1.6 billion over 10 years for northern and remote energy, which covers replacing aging northern grids and the Mayo and Atlin hydro projects. The Canadian High Arctic Research Station gets $250 million, GeoNorth and CanNor both get renewed ($34 million and $71 million), there's $11 million for Arctic offshore oil and gas oversight, and the Northern Residents Deductions get simplified.
CSIS gets the largest new security commitment in budget over the long term, with $6 billion commited over 10 years from 2027-28 cash, and $579.5 million ongoing, to expand its presence, counter terrorism capabilities, their ability to deter foreign interference and espionage, and to rely less on foreign partners.
Only $384 million falls inside the five-year table and the actual details are lacking. I make note that long-term this is a really great, stable steam of funding being blessed upon CSIS (while CSE is forced to make do with no hugs or kisses tonight) the initial short-term commitment remains limited.
When it comes to Cyber there are several smaller initatives also mentioned. $12 million is commited over four years for the Canadian Cyber Defence Collective’s Strategic Forum, there are proposed Aeronautics Act changes to set cybersecurity rules for aircraft and airports, and anti-spam law changes letting the CRTC share information with national security organizations.
Some Thoughts
Plainly, the amount of new money actually set aside in here is minimal, but I think some will get a bit overly hung on things. I wasn't expecting too much out of budget, admittedly. I had been told by several folks to not get overly excited about what was coming.
I expected budget to be fine, and this exceeded that expectation at the least. Is it anything life changing? No. Is it as ambitious as last year? Also no. Is that a failure? Not really. Different budgets will have different priorities, and a lack of new in this one does not negate the funding and spending plan already commited to as we aim towards five percent.
Keeping in mind, again, with an upcoming defence policy set to be dropped, there could be larger shifts coming that have been pushed off into that policy. The Budget even lays it out itself under the core spending table saying the projections quote :"do not account for future commitments made by the Government of Canada which will have an impact on core defence spending."
The BDC-EDC reorganization is perhaps the most conququential for Industry as a whole, and again, I do support the move. There is risk involved, as there always is. The budget gives no timeline. A merger like this takes years, and it coming now right in the middle of thedefence blitz.
Existing programs stay in place, but new products and big decisions tend to slow down while organizations are merging. For Defence firms that need financing now, a reorganization can be a big concern if things start to get complicated. There is, of course, also the risk of things and organizations fslling through the cracks of a larger organization. Also doesn't remove any other overlaps in funding.
Now organizations like Finnvera and KfW are examples of how this could work. Both serve a similar concept, but the beast will be in the exfution here over the idea itself. I also am not the biggest fan of some of the porgrams on the book, like RDII which I find too limited, too burdensome on SME whom have to take on the financial burden to participate, and was an absolute mess to get through. At the least, I would rather see some reform to how the program.operates and manages the intske process to better steamline and make applying smoother.
Space, as per usual, is a chefs kiss that makes me very happy. If we did what this government did for space on all the things I liked, I would be the happiest person in Canada. Still, while budget is better than I expected, that doesnt mean it's perfect.
Most of the money is coming later or in some cases outside the five year window, such as most of the CSIS money. The Defence Industry Resilience Program has no dollar figures attached here, and most of the programs commited to are lacking in timelines. DDI new funding comes in the 2029-2030 period as well and, admittedly, I feel is also lacking.
Quantum, Launch The North, etc are all awesome but have no dollar figures actually attavhed to them. They merely exist in a larger pool to eventually be drawn from. That again isn't a failure, but it is something we gotta wait still to see on. I worry about having to tap into existing resources as well.
On the actual percentage of spending as well things get a bit tricky when you're stabalizing at a percentage but also expecting year on yeat growth. Tieing is defence spending increases year-on-year to economic growth is obviously not unheard of, but does carry a form of volatility and uncertainty if numbes do worse, or even better, than expected.
Like I think this budget is fine. Good even. Not great but it doesn't have to be when there are more important documents coming, at least on defence. I don't think you all care my thoughts on Oil or arenas and such for me to get into those. When it comes to what we actually write about here? I think this is an acceptable budget.
At least put some of that money into the full order of 88 CF-35 stealth fighters as well as the infrastructure needed for them at Cold Lake & Bagotville!!!