Budget 2025: A Strong Signal for Canada’s Defence, Innovation, and Industrial Sovereignty

Budget 2025 marks a deliberate shift for the Government of Canada. It reflects a state under pressure, determined to regain control over its industrial base while asserting a more influential role at the global leadership table. In the face of geopolitical tensions, tariff conflicts, and supply-chain disruptions, Ottawa is positioning defence, security, and AI as key drivers of innovation and economic growth.

This repositioning is also about strengthening Canada’s international credibility. To attract and retain investment, Canada must demonstrate its ability to safeguard critical infrastructure, support applied research, and ensure stable value chains in key strategic sectors.

The Carney government is presenting a budget centred on national security, major infrastructure projects, and technological sovereignty. With significant increases to military spending and the launch of a new Defence Industrial Strategy, it aims to link defence policy more tightly to innovation.

National Defence: A Sector Undergoing Major Change

In June, the federal government announced an immediate increase to defence spending, committing to reach NATO’s 2% of GDP target before the end of the fiscal year. To help meet this threshold, the government added a $ 9 billion boost for 2025–2026 to the previously announced $40 billion and included the transfer of the Canadian Coast Guard to the Department of National Defence (DND), as well as funding for related services in other departments. Together, these measures brought the total budget to $60 billion.

The new budget goes even further, adding $72.8 billion to previously announced amounts, for a total of $81.8 billion over five years. The initial $9 billion was a 22% increase to the 2025–2026 defence budget—now a recurring commitment—as Canada ultimately targets 3.5% of GDP in traditional military spending and 1.5% in security reinforcement.

These investments aim to address urgent needs, modernize a long-underfunded military, and lay the groundwork for a new national defence strategy, which will need to be developed quickly to steer the expansion of Canada’s defence capabilities.

Of the $81.8 billion announced:

• $51 billion will go towards recruitment, salaries, and health services ($20B), infrastructure and equipment upgrades ($19B), and digital modernization and cyber defence ($10.9B);
• $17.9 billion over five years will expand military capabilities, including in the Arctic, space, and emerging technologies (drones, countermeasures); and
• $6.6 billion over five years will strengthen Canada’s defence industrial base, including $4.6B allocated to research, capital access, and supply-chain resilience.

For the industry, this budget sends out a clear signal: the government has set out to build a strong, competitive Canadian defence industrial base. However, whether this turning point succeeds will also depend on the federal government and the Canadian Armed Forces’ ability to expedite their decision-making and modernize their organizational culture.

Defence is no longer viewed as a cost, but as a strategic investment in the knowledge economy and national security. For Montreal and Quebec City, this shift opens the door to major benefits: strengthening the innovation ecosystem and accelerating the integration of dual-use technologies—from cybersecurity and AI to aerospace and advanced manufacturing.

AI and Digital Transformation

Budget 2025 also allocates more than $1 billion over five years to reinforce Canada’s position in AI and quantum computing.

The flagship $925.6-million investment will create a “sovereign” public AI infrastructure, providing Canadian researchers and companies access to secure, Canadian-compliant supercomputing capacity to develop advanced AI models. An additional $334.3 million will support Canadian quantum-technology firms and the adoption of these technologies in defence applications, funded through the forthcoming Defence Industrial Strategy.

Beyond spending, Ottawa is betting on AI to transform federal operations. A new Office of Digital Transformation will accelerate the adoption of technological solutions across government and eliminate redundant procurement rules. Shared Services Canada, working with the Department of National Defence and the Communications Security Establishment Canada, will develop a “made-in-Canada” AI tool to be deployed government-wide, in partnership with Canadian companies. The Minister of Artificial Intelligence and Digital Innovation, Evan Solomon, will also work alongside industry to identify promising infrastructure projects and negotiate memorandums of understanding. A new national AI strategy is expected by the end of 2025.

For companies affected by Budget 2025 measures, this is a crucial window to connect with the federal government. The period immediately following a budget is often decisive: this is when programs take shape, eligibility criteria are refined, and partnership opportunities emerge.

With its team of experts, TACT is uniquely positioned to support organizations looking to engage the federal government on their priorities and fully participate in this economic and strategic transformation.