Feds must spend $164B to hit NATO target by 2035, budget watchdog projects

OTTAWA – A new report published by the Parliamentary Budget Office said the federal government will have to spend $163.6 billion in cash on core defence spending by 2035 to meet its spending pledge under the North Atlantic Treaty Organization (NATO).

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The report published on Tuesday said while the Department of National Defence has increased its capital expenditures in recent years, Canada’s NATO commitments will require defence spending to increase further and remain at “substantially higher levels.”

The Liberal government has committed to spending five per cent of its GDP towards defence spending by 2035, a new spending target set by NATO allies last year.

The breakdown includes 3.5 per cent allocated for core defence spending and 1.5 per cent for ancillary spending, which includes investments in defence infrastructure. Canada only recently achieved its two per-cent spending commitment, first promised in 2014.

In May, Prime Minister Mark Carney said Canada will reach four per cent by 2030-31, which would mean core defence spending would rise to 2.5 per cent.

The PBO report estimates that it will require $95.7 billion by 2030 for Carney’s pledge to turn into a reality.

Parliamentary Budget Officer Annette Ryan said the federal government’s plan to hit its five per-cent NATO spending target seems to still be “in formation,” noting that key details are missing.

“I think it’s fair to say that the government’s plans in the next five years or over the next 10 years are still in formation,” Ryan told a House of Commons committee this week.

“I think that it is also fair to say that there remain numerous… kind of elements of that plan to be elaborated and set forth over this five-year period, let alone the 10-year period,” she added.

The federal government has been criticized for not showing its work on its defence spending plans. Budget 2025 and the spring economic update from 2026 lacked any breakdown of its defence spending projections.

Finance Minister François-Philippe Champagne told reporters more details will come on his government’s defence spending plans, although he provided no timeline.

Ryan and her colleagues confirmed that they have received a remit from the Department of National Defence, which provides a breakdown of the department’s spending, which has been used for the PBO’s latest projections.

The PBO also noted that NATO measures spending pledges on a cash basis and the Canadian government uses accrual accounting for its financial statements and fiscal indicators.

“More recent analysis by the (PBO) indicates that the difference between the cash and the accrual impacts of increased defence spending could be upwards of 30 percent per year during this period of rapid investment,” said Ryan. “In other words, borrowing requirements for these measures could be 30 percent higher than recorded in relevant deficits.”

Liberal MP Tim Watchorn listed off several recent defence-related announcements by his government in recent months, including announced investments in the Canadian Patrol Submarine Project, Arctic over-the-horizon radar, armoured combat support vehicles and the replacement of Canadian Armed Forces’ assault rifles.

Conservative members of the committee pointed out that there is a lack of details on cost breakdowns on most of those announcements and the combined investments of the proposed projects still don’t get Canada to its NATO spending targets.

The PBO said the recent spending by DND is encouraging, noting that between 2017-18 to 2023-24, the cumulative shortfall relative to the original capital spending plans was $18.5 billion. The report said more recently the gap between DND’s planned and actual spending has decreased.

“Public Accounts data show that expenditures under DND’s capital vote increased from $4.9 billion in 2022-23 to $8.8 billion in 2024-25, while lapses fell from approximately $1.0 billion to $0.2 billion,” the report said.

National Post

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