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A new report from Canada’s Parliamentary Budget Office suggests reaching NATO’s new defence spending targets could be a heavier fiscal lift for Canada than previously thought — one that could blow a giant hole in the federal budget.
The analysis released Thursday estimates that between now and 2035, the annual defence budget will need an additional $33.5 billion in order to meet the benchmark of 3.5 per cent direct spending on the military, which allies agreed upon during the last meeting of the alliance’s leaders in the Netherlands.
Overall, NATO countries have pledged to spend five per cent of their gross domestic products on defence — 3.5 per cent on their militaries and an additional 1.5 per cent on defence infrastructure.
The PBO estimates that all of the extra cash flowing into defence means the budget deficit will balloon to $63 billion (1.4 percentage points of GDP) in 2035-36 and increase the federal debt-to-GDP ratio.
There is, however, a big asterix on the estimates because of all of the budget secrecy imposed by the federal government.
Prime Minister Mark Carney pledged last June that Canada would reach NATO’s old target of two per cent of GDP by the end of March 2026. To do so, he injected an additional $9 billion into military spending.
Description: Canada is ramping up defence spending, and the Royal Canadian Navy is looking at how it can efficiently move equipment and personnel through the Arctic. The CBC’s Murray Brewster shares more on the plans.
In preparing its estimate, the PBO had to assume that goal will be met.
When last fall’s federal budget was published, it did not contain a detailed year-by-year breakdown of defence spending going forward.
That is a marked departure from previous budgets and harkens back to the kind of fiscal secrecy that surrounded federal finances under the Conservative government of former prime minister Stephen Harper.
Detailed projections not provided
CBC News and other media requested detailed projections at the time of the budget and those requests have gone unanswered.
The PBO, in its capacity as a parliamentary watchdog, also asked but was rebuffed.
“Despite indicating in Budget 2025 that accelerating investments will ‘put Canada on a pathway’ to meet the NATO five per cent commitment by 2035, the government has not published supporting projection details,” the PBO analysis said.
“DND did not provide a year-by-year spending path and noted that NATO’s measure of planned defence spending as a share of GDP is based on NATO-provided GDP forecasts. DND instead referenced estimates suggesting that defence spending equivalent to 3.5 per cent and 1.5 per cent of GDP in 2035 could be approximately $150 billion and $60 billion, respectively, subject to change.”
Those figures represent a change to what government officials estimated at the time Canada signed on to the new NATO pledge.
At that time, senior federal officials on background said the overall commitment would cost approximately $150 billion in total — $100 billion spent directly on the military and an additional $50 billion in defence infrastructure.