**National Defence Minister David McGuinty delivered a keynote speech at CANSEC this week. / CPAC SCREENSHOT**

Canada’s increased military spending may be a response to geopolitical instability and the world becoming more dangerous, but it could also serve as a powerful economic lever, according to a new report from CIBC Capital Markets.

In a report titled Guns N’ Roses, CIBC economists Benjamin Tal and Katherine Judge argue that while it would have been preferable to be able to invest in healthcare or education, given the pressure to increase government defence spending, it pays to examine the economic impacts. “The bottom line: if spent wisely, the economic multiplier of defence spending can be larger than perceived, with multiple short-and-long-term positive spinoffs. In other words, defence spending does not crowd-out activity, it crowds it in.”

According to the CIBC analysis, every $1 in operational defence spending provides a $2 boost to gross domestic product, and every $1 in defence capital spending boosts GDP by $2.17. Tal and Judge estimate the $31 billion earmarked by the Liberal government for new defence spending through 2029 could boost the Canadian economy by up to $64 billion — assuming an effective balance of capital investment and operational expenditure. They caution that if the spending is financed by higher taxes versus debt, the benefits will be smaller.

Rearming, reinvesting

Canada is at a crossroads, facing a world that is “a more dangerous and uncertain place than at any point since the Second World War,” King Charles III said this week in the Speech from the Throne that was written by Prime Minister Carney’s office. “The Government will protect Canada’s sovereignty by rebuilding, rearming and reinvesting in the Canadian Armed Forces.”

This policy shift includes joining the ReArm Europe initiative and boosting domestic defence industry capabilities. The Throne Speech also set the stage for a broader economic transformation, saying Canada has an opportunity “to embark on the largest transformation of its economy since the Second World War.”

National Defence Minister David McGuinty reiterated this message this week in a speech at CANSEC, an industry trade show for the defence sector.

“We face real challenges, both military and non-military, that demand an equally strong and coordinated response,” McGuinty said. “This includes growing activity in the Arctic, where our competitors have shown little hesitation in challenging Canada's territorial sovereignty, as well as the threats posed by emerging technologies that are changing the very nature of war.”

Emerging threats

McGuinty said Canada is “moving quickly” to ensure the military has the tools it needs to defend the country and the continent while remaining “an engaged, reliable partner abroad.” Canadians have a legacy of mobilizing quickly, he said. “During the Second World War, we went from just six ships to the third largest Navy in the world. We can and we will recapture the same innovative spirit by procuring new equipment, we can meet modern challenges.”

Canada — protected by likely foes by distance — spent only 1.4% of GDP on defence in 2024, making it one of eight NATO countries that are currently undershooting the 2% target, according to Tal and Judge. The country’s defence spending peaked in 1953 at 7% of GDP, then declined to just over 2% in the mid-1980s, then to below the 2% target under successive Chretien and Harper governments. “As a result of those periods of consolidation, the size of the Canadian Armed Forces has fallen by more than 40%.”

Beyond equipment and infrastructure, the government pledged to strengthen the North, fortify border security, and modernize the RCMP, emphasizing that “to be truly strong, Canada must be secure.”

The CIBC report looks at these investments through an economic lens, noting that developed countries like Canada tend to reap a positive economic multiplier from military spending, especially when a significant portion is allocated to domestic R&D and procurement.

“Increased military spending is not ideal, but if it is a given due to political circumstances, it is good to know that the defence multiplier comes with a positive sign attached to it,” Tal and Judge wrote. The federal government, it seems, is betting on that very principle.