Dr. Julian Spencer Churchill and I previously laid out a vision on how Canada could build up the Canadian Armed Forces to meet this moment in time. War clouds continue to gather all around Canada: in Europe, the Middle East, Asia and here in the Americas. Now is not the time for half measures and a go slow approach. There is a very strong economic case on why our idea of investing $ 650 Billion dollars today in the production of guns and bullets is the best way to quickly stimulate the Canadian economy, and prepare for a coming conflict.
This size and level of investment proposed is actually more pressing security need and economic boost than the major projects that the current government has fast tracked and is touting as nation building. These grand civilian works are indeed needed and worthy to make Canada stronger, but quickly investing in massive rearmament provides much greater benefits to Canada both in the short and long term. This government has already committed to increasing defense spending substantially, the best way to do it is to front load it, and not dribble it out in fits and starts as seems to be going on now. Time is indeed our enemy, not a friend.
Why such a massive upfront investment? Simple answer, we neglected our military for decades. How do we pay for this without wrecking the budget? We have advocated that Canada use the fiscal firepower borrowing room that was gifted by the Canadian governments under Jean Chrétien, Paul Martin and Steven Harper, to borrow the funds as repayable loans totaling $650 billion amortized over 35 years. Like any homeowner knows, when you buy a house and finance it, there is a mortgage and repayment schedule. To make sure that this investment does not cost future generations as being added to our general debt obligations.
We believe that the principal and interest payments needs to be counted as part of the Canadian direct 3.5% of GDP annual NATO defence spending commitment. After all, this money is all used for the purchase of defence equipment and infrastructure. Canada has a AAA credit rating and to keep borrowing costs lower the government should make the most efficient use of it. Amortizing the life of the loan to the equipment life is also sound. Borrowing the money with a fixed payment terms of about 1%of 2024 GDP brings cost certainty to spending and allows the percent of GDP devoted to payments to shrink over the life of the loan, allowing fiscal space to be available to buy newer transformative systems when they become available and viable.
Buying Suffren Class nuclear submarines and Cavour class Aircraft Carriers as we recommend, built in France and Italy with Canadian steel, aluminum and uranium adds labour dollars and jobs in the EU and jobs and demand for Canadian metal refiners and mines. Canada lacks the shipyard infrastructure to build these vessels types now, but we still can get them fairly quickly contributing all the construction inputs we have available now. This is the most efficient use of capital and resources. Orders like this incentivizes these manufacturers to commit money in Canada to build the required shipyard infrastructure to maintain and upgrade their equipment and capabilities over their multi decades long service lives. That new infrastructure is a long term commitment which guarantees the next generation of such equipment will be built here, by them. It becomes a mutually beneficial economic benefit for all involved parties.
The win-win logic of fair trade relationships is furthered by this kind of partnerships. Unlike the United States which is in the process of demanding re-shoring of its industries and capital, Canada creates new virtuous trade arrangements where our capital, materials and products flow freely to our partners and where their knowhow, capital and products would flow back into Canada. The world is so unstable right now geopolitically and full of disruption with nations all scrambling to expand defence production and infrastructure to meet growing threats, working together to maximize benefits for both partners works better than being given ultimatums.
Canada is blessed as the world’s store of natural resources, with vast quantities of everything needed to make guns, butter and bullets, far more than our 41 million people can consume. It makes natural economic sense to build the industries needing these materials as close to the source as possible to make the most efficient use of lower transportation costs of shorter material supply chains. Why not make Canada the “Arsenal of Democracy” again like World War 2? The government by its spending, creating the necessary demand increase to justify investment, also needs to make the regulatory environment as light and efficient as possible to incentivize our partners and Canadians to invest their capital to build here even more compelling.
Infrastructure which includes all the buildings, roads, airstrips, docks, hangars, etc. that such a massive expansion of the Canadian Military and Coast Guard would need, will be also be a significant economic growth driver. With the collapse of new house construction in Canada, which had become such an outsized contributor to Canadian GDP growth in recent years, building new military housing and infrastructure is an economically sound way to keep those jobs and people here, and spur growth allowing the housing market to grow again. This government has made a good start with its plan to build to build 6000 new military houses. We plan much bigger, with a costed requirement of $121.5 billion of total military infrastructure investment by 2031.
$650 billion seems like a lot of money, and it certainly is, being a onetime fiscal stimulus of almost 21% of our 2024 GDP. How do we spend this money and why so much? Table 1 shows how we broke it up into each force component and the projected amount to be spent.
Proposed Canadian Rearmament Program Army/MilitiaNavy/Coast GuardAir and Space ForceCost/ProgramCanadian Forces and Coast Guard New Aircraft Building Program19.650529.47675118.0925167.220Canadian Navy and Coast Guard New Vessel Purchase Program142.305142.305DND Facility Infrastructure Building and Modernization Program48.8919.7352.88121.5Canadian Forces Land Force Modernization Program95.397950.5045.0341100.936Wartime Ordnance Purchase Program Costs20.721119.586412.0110542.3186Canadian Forces Small Arms and Misc. Equipment Modernization Program2071138Canadian Forces Equipment Spares Purchase Program111112.234.2Armed Forces Modernization Contingency Reserve1113Army/Navy/Air Cadet New Gear and Equipment Program0.160.170.190.52Total DND Recapitalizations Budget 2025 Dollars (Billions)216.65956220.60215212.21765649.999
Table 1
In business, scale is lowers cost. The problem with the defence industry in Canada has always been we are a small market, and it has been uneconomical to produce most defense equipment here absent massive government subsidies to build it domestically. A classic example is the Type 26 ships now being built in Nova Scotia as the future warships of the Canadian Navy. (Spoiler alert, they need to be cancelled one reason being the cost) Norway just ordered 5 Type 26 ships for $13.5 billion USD or $18.5 billion CAD to be built in UK shipyards. The first 3 being built in Canada are costing the taxpayers $22.2 billion CAD. That is fiscal resource allocation malpractice.
It would actually be more economically and tax efficient and cheaper to pay every laid off Canadian shipyard worker a million dollars and contract for 5 ships from the UK yards like the Norwegians. A good Canadian example of doing defence production right is General Dynamics Canada which builds the LAV in London Ontario. It is a world class product, in US Army and Marines service as well as the Saudi’s and of course Canada. The LAV 6 is a great Canadian example of how we should be buying our products, by volume, the Type 26, is a loud caution against trying to make absolutely everything in Canada, and subsidizing that inefficiency.
Unless Canada is willing to commit to real economies of scale in defense procurement, it will doomed to continued economic inefficiency and wasted money buying hardware. That is why SAAB wants Canada to buy 70+ Gripen and to also build Ukrainian orders here, if we commit. (Spoiler Alert, we should buy the Gripen). Our plan to both expand the size of the armed forces and to the quantities of equipment envisioned creates the economic conditions to build economically as well as become a major player of defence development, production and support and to compete in the export market alongside out partners. In light of Canada joining the European defence initiative as well as the announcement of the German government’s plan to spend $377 USD on new military equipment, it makes perfect economic sense to fully utilize Canada’s fiscal firepower to this effort and work with our European NATO and other defence partners creating truly large economies of scale and driving down the cost of production for everyone.
Also the economics of such a massive defence procurement stimulus on the effect it will have with domestic companies in spurring innovation, manufacturing and job creation is huge. Canada has now made it a priority to spur investment in defence products and development, and rightly so. With the present commitments this government has made to increase spending to 2% of GDP, one sees how the local defence industry base is excited about that level of growth. Now imagine the level of engagement and number of industry partners both established and new that will be willing to invest significant capital and infrastructure in Canada with the prospect of being part of a $650 Billion dollar boost? That level of defence investment will certainly add much more than two hundred thousand direct manufacturing and resource extraction and processing sector jobs within Canada, never mind the job growth in the supporting service and the retail sectors, and jobs within our partner nations.
Manufacturing jobs have a higher multiplier effect than other sectors, so every dollar spent on building tanks, planes and ships adds more value to the economy and creates even more direct economic growth than other jobs. Investing this amount in defence now will buy a lot of economic growth, and we can actually do it fairly quickly by forgoing the desire to order the next cutting edge new technologies. We need these products all now, not 10 years from now, so the government should act quickly to reequip the forces while it can.
The F-35A is the perfect example of why buying cutting edge today is wrong. It took 20 years to reach full capability and now with a war likely coming much sooner than later, the Americans order book is full for years and they want it to only be built in the USA. To mirror what President Trump has said, the United States does not produce anything Canada absolutely “needs” It makes many things we may want, but we are quite capable of producing our “needs” in Canada. Spending our defense dollars economically working cooperatively with partners who value free and fair trade to build each other’s defense industries up to meet all our needs is just being a prudent ward of our money.