Carney’s defence spending will add up to $46 billion to economy, CIBC says

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The economic gains of Prime Minister Mark Carney’s defence spending boost will likely be worth more than double the planned investment costs, according to Canadian Imperial Bank of Commerce economists.

The $31 billion that Carney’s government has earmarked for additional defence outlays through the fiscal year ending in 2029 may boost Canada’s economy by as much as $64 billion, CIBC’s Benjamin Tal and Katherine Judge said in a report Wednesday.

That’s because the economy is expected to expand in response to the ramp-up in defence spending, production, procurement and employment. But if the outlay is financed by higher taxes or cuts to other programs, the effect would be smaller, they said. Debt financing may also reduce the size of the multiplier via higher long-term rates.

Carney’s pledge to strengthen the Canadian Armed Forces is compelled in part by U.S. President Donald Trump’s criticism that the northern nation isn’t spending enough on its military and counts on Americans for protection from foreign powers.

Some of that is true. Having spent only 1.4% of gross domestic product on defence last year, Canada is at the bottom end of the spectrum globally, Tal and Judge wrote. The country is also “under-performing” on purchases of new equipment, they said.

Carney has promised to exceed the North Atlantic Treaty Organization’s obligation of spending 2% of GDP on defence by 2030 — though the alliance is swiftly moving toward raising that target to 5%. Carney has also promised to bolster partnerships with Europe and move away from the U.S., where he says 75% of Canada’s defence spending was previously destined.

The prime minister told the CBC on Tuesday that he hopes to sign on to a major European defence procurement initiative called Readiness 2030, formerly known as Rearm Europe, by July 1. His defence minister, David McGuinty, said Wednesday the government is taking “immediate and decisive action” to rebuild Canada’s defence capacity.