Budget 2026 focuses on long-term success over big ticket spending, lobbyists say
The Hill Times photograph by Andrew Meade
Minister of National Defence David McGuinty responds to the Auditor General of Canada’s findings on Oct. 29, 2026, after the office’s October 2026 reports were tabled.
While Budget 2026 did not include a wide range of new funding or big ticket items for national defence, it builds on the new foundation laid out by the Carney government which is necessary for long term success, said Duncan Hills.
“Canada started cutting defence in 1989, even before the Berlin Wall fell [and] you can’t reverse that length of neglect overnight,” said Hills, senior advisor for defence and security at NorthStar Public Affairs, during a Nov. 11 interview with The Lobby Monitor. “We’re still in the phase where we’re sort of preparing the ground to rebuild our defence industrial capacity, but more importantly, our defence capacity.”
Hills noted that the defence chapter of the budget document mostly consists of initiatives and funding that were previously announced.
“Overall the government has done a lot this year and they talked about what they’ve done in the budget, but there wasn’t a lot that was new in the budget,” he said, referring to items such as the Defence Drone Initiative which was announced in July 2026. “These are things that have already been announced, but they just sort of put them all together in the budget document to remind people what they’ve done.”
“If you were looking for the big flashy announcements in this budget, there weren’t any,” he added.
However, the lack of new items isn’t a negative as Canada’s defence spending is set to reach an estimated $80 billion in 2027-28, a significant leap from the 2024 total of $33.5 billion. The budget also estimates that the spending will reach about $100 billion by the end of the decade.
“We’ve made incredible progress. We are now allocating the sort of resources we should have been allocating since at least 2014 when we had the two per cent [of GDP NATO] commitment, but I was happy we met the two per cent commitment last year and we’re now above that,” said Hills.
Despite Budget 2026 not introducing any major investments or purchases, the federal government has been successful in spurring interest and growth in the Canadian industrial defence base.
“There’s amazing enthusiasm there from industry, and we are starting to see contracts flow to the existing companies in the defence industrial base,” said Hills.
In addition to established defence companies receiving contracts, Canadian startups are seeing investments from the government.
“The Defence Drone Initiative, where they put $2.3 billion over five years…there are small companies now in Canada getting money from this and working with Ukrainian companies,” Hills said. “It has encouraged startups to try and work with the Department of National Defence in a way they never have before.”
“It’s a total shift in mindset because until this year, if you were doing a startup in drones, you probably would have been exclusively looking at the civilian market, or you would have been looking at military markets in other countries,” he continued. “But now they’re actually realistically looking at the military market in Canada.”
Daniel Perry, director of federal affairs at the Council of Canadian Innovators (CCI), told The Lobby Monitor that some of its members could potentially benefit from the Defence Drone Initiative.
“The drone initiative outlined in this budget has created a faster route from testing to going into contract,” he said during a Nov. 10 interview. “It originally launched in July and saw the first contract awarded within 50 days. In procurement, let alone defence procurement, that speed has never been heard of. Seeing that the government is investing more into this initiative is a great step forward.”
However, the council will continue engaging with the federal government to clarify how the government categorizes products and services as “Canadian” and “sovereign.”
“When the government talks about ‘sovereignty’ and talks about ‘Canadian,’ are they talking about Canadian companies?” said Perry. “Are they talking about people that buy products from abroad and assemble it here, then they call that Canadian. The biggest question mark is what it means to be sovereign and how the government is using that in this context.”
CCI represents “homegrown Canadian CEOs in the tech and innovation sector,” with the objective of helping build and promote an ecosystem that allows Canadian technology firms to scale-up globally in an intensely competitive environment.
Converting funding into long-term results
The influx of defence spending has been a positive development, but while there is a focus on big ticket items—such as submarines and fighter jets—the less interesting issues, such as infrastructure, recruitment, and creating a public service to oversee all of the new projects, are equally as important.
While the Canadian Armed Forces are improving their recruitment numbers, although they are not at the government’s target goal, existing infrastructure is not yet capable of supporting new recruits and equipment.
“The Canadian Armed Forces are getting record applications, but they can’t induct all the people because they don’t have space in the training infrastructure,” said Hills. “It needs to be expanded and modernized in order to deal with all the new recruits.”
The same issue is present in regards to new equipment that the government is in the process of procuring.
“Lockheed Martin has produced Canada’s first two F-35 [fighter jets], and they’re training on them, but currently, there is no base in Canada with the infrastructure to house an F-35. None,” Hills explained. “So we own two of them, but we can’t bring them home because we have nowhere to put them.”
He noted that it is the same situation with the TKMS Type 212CD conventional diesel-electric submarine that Canada is set to begin receiving in the early 2030s.
“It’s going to take until 2033 before Canada gets a new submarine, but building the base to accommodate those new submarines, it’s got to start sooner rather than later.”
However, Hills pointed out the positive is that Canadian workers and the domestic economy will reap the economic benefits from these infrastructure projects.
“There’ll be jobs associated with that, like probably starting next year…and so construction jobs are going to feel the impact of this money sooner rather than later,” he continued. “That’s really important for the Carney government because if you think about defence equipment, it takes so long to be delivered in most cases…but the impact on the Canadian Armed Forces in terms of recruiting and in terms of new infrastructure should be felt much sooner, and that will have a good economic impact as well.”
The final challenge presented by this opportunity is that the government will need to expand the public service and organize funding channels to get the new funding to their intended destination and then produce the intended results.
“They’re a little overwhelmed,” said Hills in regards to the public service. “This has happened very quickly, where you’re pouring more money into the same public service and the public service wasn’t designed to receive that. It’s like pouring a big pitcher of water into a glass that’s too small. It’s going to slop over the sides until you get a bigger glass.”
As an example, Hills pointed to Defence Construction Canada which previously handed out about $1 billion in contracts a year and is now projected to increase that to $11 billion within 5 years.
“You can’t do that without more people,” he said. “They’re trying to execute these contracts faster and more of them while hiring at the same time. That is like trying to fix the airplane while you’re flying it.”
