Following decades of bipartisan neglect and underfunding, Canada is finally getting serious about defense investment – and has key lessons to learn from Israel and other important allies.
The NATO member and critical Arctic nation unveiled its 2025 federal budget on November 4, shelling out C$81 billion to build up the Canadian Armed Forces (CAF) over five years. This would allow Canada to address allied concerns over Canadian freeloading by reaching the previous NATO defense spending target of 2% by 2026, while putting the country on a path to reach the new 5% target by 2035.
As part of this budget, Canada plans to allocate C$10.9 billion over five years to upgrade the information technology (IT) capabilities of its armed forces and signal intelligence services. Beyond IT and software, Canada also looks to spend C$17.9 billion over five years to acquire much-needed hardware like armored and utility vehicles, counter-drone systems, and long-range precision strike weapons.
The real opportunity for Canada, though, isn’t simply in rearming itself to be once again a meaningful power on the side of freedom and peace. The real opportunity – in the spirit of playing chess rather than checkers – is to use this generational investment to grow the nation’s sovereign defense industrial base that grows the economy and increases self-reliance. On this, Canada can turn to key allies for lessons.
Ukraine: Requirements and procurement agility
Canada’s new Defence Investment Agency, announced on October 2, will initially focus on streamlining major capital projects worth C$100 million or more. This threshold risks excluding many small and medium businesses (SMB) at the forefront of emerging dual-use technologies, which typically operate at smaller deal sizes. As Canada advances its Defence Industrial Strategy, it could look to Ukraine for models to better engage these smaller innovative firms.
Ukraine developed a highly streamlined and decentralized procurement system following the Russian invasion in 2022. This allows combatant units to quickly procure new solutions from SMBs amid rapid technological cycles that last from a few weeks to a few months.
Such a decentralized system enables, for example, an individual Ukrainian unit on the frontline to define and directly communicate to industry the requirements for a new kamikaze drone without going through the Ukrainian acquisition bureaucracy. In return, a drone maker builds or modifies a solution based on those requirements and directly sells it to the military unit without going through a contract officer.
That kind of speed and iteration will define operational success in defense tech going forward.
Nonetheless, this model presents shortcomings. It results in a fragmented arsenal across the Ukrainian military, limiting the interoperability and scalability of a particular solution.
Canada should adopt this model while minimizing the risks. It could shift requirements definition and procurement powers from the acquisition bureaucracy to an operational command such as the Canadian Joint Operations Command (CJOC) – which executes most CAF operations – instead of individual units, while pushing more money down to CJOC as well for rapid purchasing under higher pre-determined thresholds.
US budget flexibility
The US Department of Defense (DOD) and Congress are currently reforming the defense budgeting process – formally called the Planning, Programing, Budgeting, and Execution (PPBE) process – to enable agile and accelerated procurement of new military capabilities.
The PPBE Reform will allow the Pentagon to have discretionary authority over multi-year funds to invest in new capabilities based on the operational tempo – without having to get permission for every single move.
This contrasts with the current system, where multi-year defense funds are locked into narrow pre-approved spending categories, where moving money between them requires multiple approvals and months of paperwork.
The US also plans to grant the Pentagon more discretionary authority in allocating money by consolidating spending categories in the defense budget according to specific mission sets.
For instance, there are calls to consolidate drone and counter-drone systems under one spending category in the defense budget, allowing DOW to reallocate funds between offensive (i.e., drones) and defensive (i.e., counter-drone) solutions based on the latest technological and operational developments.
While Canada allocates multi-year funding for in-service support (e.g., maintenance, modifications) of current military capabilities, it could draw inspiration from the US effort to increase budget flexibility to regularly procure new capabilities in a quicker and more agile way. However, it is important to keep in mind that Canada would need to tailor such a budgeting reform to its own political and administrative system and with a view to boosting domestic commercialization.
Israel: Nurturing a competitive challenger
However, it is not enough to adopt budget flexibility, agile requirements, and procurement processes to build a competitive challenger defense industry that can go head-to-head with more established ecosystems such as the US. Developing capable companies that can supply competitive dual-use technologies to Canadian and foreign defense markets requires nurturing a talent base.
Israel stands as a pioneer in this field with Talpiot, an IDF unit – based in the Hebrew University of Jerusalem – focused on training a talent pool of soldier-inventors that can research and develop technologies to address the most pressing military challenges.
Talpiot recruits the most talented Israeli graduates in science, technology, engineering, and maths (STEM). It subsequently instills in its new military recruits out-of-the-box problem-solving skills. The unit then embeds its members into all IDF branches where they will identify military challenges and build innovative solutions to solve them.
This brain trust plays a big role in the rise of the Israeli defense industry. After leaving the IDF, many former Talpiot members have founded companies that supply military-unique or dual-use technologies. For example, Talpiot veteran Marius Nacht went on to co-found Check Point Software Technologies, an Israel-based cybersecurity provider that today protects over 100,000 organizations worldwide. Advanced problem-solving skills and deep understanding of national security problems allowed those entrepreneurs to successfully develop and commercialize solutions featuring strong product-market fit.
In addition to reforming the budget, requirements, and procurement processes, Canada could draw inspiration from the Talpiot model and craft a university-based CAF training program that would ultimately nurture a talent pool of soldier-inventors that exhibits a deep understanding of dual-use technologies and national security problems.
Canada’s defense buildup is a rare chance to fix how it buys and builds military power. Ukraine shows the value of speed, the US, of budget flexibility, and Israel, of talent. If Ottawa blends all three, it can turn this surge in spending into lasting strength – not just for the CAF, but for Canada’s defense and prosperity itself.
Matthew J. Bondy is CEO of Bondy & Associates, and a senior fellow with the Macdonald-Laurier Institute and the Centre for North American Prosperity and Security.