A recent study by Canada’s Parliamentary Budget Office indicates that meeting NATO’s updated defense spending goals may pose a more significant financial challenge for Canada than initially anticipated, potentially leading to a substantial deficit in the federal budget. The analysis, unveiled on Thursday, projects that an extra $33.5 billion will be required annually in the defense budget from now until 2035 to achieve the target of allocating 3.5% of direct spending to the military, as agreed upon by NATO leaders during their recent summit in the Netherlands.
NATO member countries have committed to allocating five percent of their gross domestic product to defense, with 3.5% designated for military expenditure and an additional 1.5% for defense infrastructure. According to the PBO’s estimates, the increased defense spending will result in a $63 billion surge in the budget deficit by 2035-36, equivalent to 1.4 percentage points of GDP, and will elevate the federal debt-to-GDP ratio.
However, the accuracy of these projections is somewhat uncertain due to the lack of transparency surrounding the federal government’s budget details. Prime Minister Mark Carney had previously pledged to meet NATO’s previous target of two percent of GDP by March 2026 by injecting an extra $9 billion into military spending.
The PBO’s projections were based on the assumption that this goal would be achieved. Notably, the federal budget released last fall did not include a comprehensive breakdown of defense spending for the upcoming years, deviating from past practices and echoing a level of fiscal opacity reminiscent of the Conservative government under former Prime Minister Stephen Harper.
Despite requests from CBC News and other media outlets, detailed spending forecasts were not provided at the time of the budget release, with the PBO also facing resistance in obtaining this information. The government’s failure to publish supporting projection details has raised concerns, especially considering the accelerated investments aimed at meeting NATO’s five percent commitment by 2035.
In contrast to the government’s initial estimates when Canada committed to the new NATO pledge in June, the projected costs have now shifted. At that time, government officials suggested that the total commitment would amount to around $150 billion, with $100 billion allocated directly to military spending and an additional $50 billion for defense infrastructure.
