Budget ‘25

BY VICE-ADMIRAL (RET’D) MARK NORMAN

The Carney government successfully passed its first budget. Now that the dust has settled, I’d like to offer some thoughts on what this might mean for Canadian defence as we go forward.

I acknowledge the great work of others over the past few weeks who have analysed in detail WHERE the significant new funds are being allocated. Although this distribution of new money is interesting, for me the more meaningful discussion is about HOW government intends to actually move the funds responsibly and what needs to be done to do this sooner than later.

DEFENCE INDUSTRIAL STRATEGY

One of the most interesting innovations in the budget was the identification of over $6B towards investments in support of the (as of yet un-promulgated) Defence Industrial Strategy. Included in this amount is an interesting allocation of $1B to the Business Development Bank of Canada to provide loans and capital to small and medium sized defence companies. I’m not sure how this industrial stimulation money will be used, but I’m pleased to see this explicit allocation of funds. Hopefully these funds will be used to mitigate some of the risks associated with commercializing, retooling, or producing capabilities that would otherwise not be commercially or financially viable for manufacturers, especially those who must bridge the “valley of death” that defeats many otherwise promising ventures. More on this in a future column once we see the strategy these funds are intended to support.

Beyond the significant injection of new money in this budget, there also appears to be continued evolution of how government accounts for spending towards its NATO obligations. The Carney government committed in June of 2025 to meet the current target of 2% of GDP by the end of this fiscal year. That is an ambitious and laudable goal that will require the rapid expenditure of an additional $9B (above their initial plan) before the end of March 2026. The jury is still out on whether this goal will be achieved or not, but the clock is ticking.

DEFENCE INVESTMENT AGENCY

Notwithstanding the understandable focus on the numbers, a recurring concern for me is how the government intends to implement the significant structural and procedural changes that are required to allow the money to actually flow. The recent creation of the Defence Investment Agency (DIA) is an excellent initial step, but many of the impediments to success are outside of DIA’s current authorities. I am also concerned that we have yet to see how exactly the government plans to explicitly prefer Canadian suppliers as they advance on this unprecedented defence spending spree. Lastly, as we have discussed previously, DND is in many respects a contributor to the problems that continue to hinder our collective capacity to move the program “at the speed of relevance” as Secretary of State Fuhr has described it. Although there are many factors that adversely impact DND’s ability to help itself, organizational culture, and process impediments are the most problematic.

LACK OF TRUST

In my experience, the CAF are obsessed with ownership and control of all of their assets and internal processes such as training, maintenance, and logistics. They are typically unwilling to “depend” on an external entity that they can’t directly control and this severely restricts their options for innovation. A palpable lack of trust across other parts of DND and commercial partners further reinforces the unwillingness of CAF to innovate or take risks. Previous attempts to privatize or commercialize “non core” processes were highly ineffective due primarily to poor contract arrangements, inadequate funding, or in-year budget cuts. This must change. 

Beyond the internal cultural impediments of the CAF/DND, the mechanics of how DND manages projects and associated funding is tightly controlled by broader government processes. DND then adds further management layers (ie; staff and governance) to ensure compliance with these Byzantine requirements.

Vote 5 (Capital) expenditures are severely constrained by extremely restrictive rules, processes and authorities and attempts to potentially innovate HOW new capabilities are delivered, are often rebuffed or thwarted due to “non compliance” with existing regulations and perceived complexity of the process. Those processes further entrench the “buy, hold, sustain, rust-out, repeat” cycle of traditional defence procurement that undermine innovation, especially for technology-intensive capabilities that are often obsolete before they are delivered.

Conversely, Vote 1 (Operational) funds are the easiest to deploy and adjust “in-year”, but they are also the most sensitive to cuts and as such have traditionally been unreliable over time. Regrettably, the use of these funds to acquire capabilities is perceived as unconventional and not encouraged or supported. Perhaps with growing budgets – and attempts by the Prime Minister himself to reframe how government characterizes spending (ie; Investments vs Operations) this unimaginative behaviour could change. I remain concerned however as even in budget 2025 we see explicit expectations of expenditure reductions at DND which send mixed messages to those trying to manage the complexity.  

Successful implementation of the government’s stated intent to rebuild the CAF while also stimulating Canadian industry will require a clearly articulated plan and strong leadership. The significant commitment to new funding for the CAF is just the first step and not a plan itself. The desired results cannot be achieved by simply hoping for a different outcome without changing how the CAF/DND behave, or without changing the procurement and spending mechanisms across government. Although I still remain skeptical, I want to believe that we can do this because failing to do so is not an option we can afford.

VAdm (Ret’d) Mark Norman is a former Commander of the RCN and Senior Defence Strategist with Samuel Associates. The views expressed here are his own and do not necessarily reflect a CDR editorial position.