A recent report from the Parliamentary Budget Office of Canada indicates that meeting NATO’s new defense spending targets may have a more significant financial impact on Canada than previously anticipated. The analysis, released on Thursday, suggests that an additional $33.5 billion will be required annually in the defense budget between now and 2035 to achieve the agreed-upon benchmark of 3.5% direct spending on the military by NATO allies.
NATO countries have committed to allocating 5% of their gross domestic product to defense, with 3.5% for their armed forces and an extra 1.5% for defense infrastructure. According to the PBO’s estimates, the increased defense spending will result in a $63 billion expansion of the budget deficit in 2035-36, equivalent to 1.4 percentage points of GDP, and lead to a rise in the federal debt-to-GDP ratio.
However, there is uncertainty surrounding these estimates due to the lack of transparency in the federal government’s budget. Despite Prime Minister Mark Carney’s pledge to meet NATO’s previous target of 2% of GDP by March 2026 by injecting an additional $9 billion into military spending, detailed year-by-year breakdowns of future defense expenditures were not included in the last fall’s federal budget.
This lack of transparency has raised concerns, with requests for detailed projections going unanswered by both media outlets and the PBO. The government’s failure to provide supporting projection details has been noted, particularly in light of the commitment to achieve the NATO 5% target by 2035.
The Department of National Defense did not offer a specific spending path, citing NATO-provided GDP forecasts. The estimated costs of defense spending equivalent to 3.5% and 1.5% of GDP in 2035 were approximately $150 billion and $60 billion, respectively, subject to change. These figures differ from the initial estimates made when Canada signed onto the new NATO pledge, with senior federal officials suggesting a total commitment of around $150 billion, including direct military spending and defense infrastructure investments.