Direct spending on Canadian military could reach more than $163B by 2035: budget watchdog

Direct spending on the Canadian military could reach $163.6 billion by 2035 under the Liberal government's proposal to meet NATO's benchmark target of five per cent of GDP, the Parliamentary Budget Office in a new report on Tuesday.

Parliamentary Budget Office report says many unknowns remain, which could affect government finances

Murray Brewster · CBC News

· Posted: Oct 06, 2026 11:54 AM EDT | Last Updated: 10 minutes ago

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Direct spending on the Canadian military could reach $163.6 billion by 2035 under the Liberal government's proposal to meet NATO's benchmark target of five per cent of GDP, the Parliamentary Budget Office said Tuesday.

However, a lot of unknowns remain that could affect government finances down the road, the fiscal watchdog said in a new report.

"Meeting Canada's defence commitments will require substantial increases in government expenditure and investment, with important implications for economic activity, industrial capacity and the composition of production in Canada," said the report penned by PBO researchers.

Since the federal government uses an accrual method when counting defence expenditures — basically recording money when it is earned, and paying bills when they are owed, not when cash actually changes hands — the impact "would increase the budgetary deficit by $63.7 billion, or 1.4 per cent of GDP," the PBO said.

What the fiscal pain might be will depend on how Prime Minister Mark Carney's government manages the increase. The PBO presents two scenarios: one where there's a gradual, steady increase in the buying of new equipment and the other where purchases are postponed.

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Under both the Liberal government of Justin Trudeau and the Conservative government of Stephen Harper, it became routine to postpone big-ticket equipment purchases. Money from some of those items was reprofiled to later years; in other cases, the funds lapsed and were returned to the federal treasury. 

In a previous report, the PBO tracked more than $18 billion set aside for military spending that lapsed under the Trudeau government.

Carney ordered the injection of $9 billion into defence last year in order for Canada to meet the old NATO spending benchmark of two per cent of gross domestic product. The new target of five per cent of GDP — 3.5 per cent on direct military spending and 1.5 per cent on defence infrastructure — is to be phased in gradually over the next decade.

Carney has said the plan is for Canada to hit a four per cent target on defence spending — 2.5 per cent and 1.5 per cent — by 2030.

Parliamentary Budget Officer Annette Ryan appears at the Commons committee on government operations and estimates on Parliament Hill in Ottawa on June 16. (Justin Tang/The Canadian Press)

Annette Ryan, who took over as parliamentary budget officer in the spring, told the House of Commons defence committee on Monday that the government's plan to reach the new target after 2030 is still a work in progress.

"It'll take some time before we can actually see the effect of all of these investments," she told committee MPs. 

Ryan said the PBO has begun work to model what sort of economic impact the drastic increase in defence spending will have on federal finances and the Canadian economy.

"This is a very rapid increase," Ryan said in French, noting there are procurement risks.

"I think that Canada's industrial capacity may not be able to meet the need, which is a risk.… And we might ask, what are we getting back from all of these industrial and technological purchases? That's another source of risk," she said. "So yes, there are a number of risks associated with these very significant sums of money."

ABOUT THE AUTHOR

Murray Brewster is the senior defence writer for CBC News, based in Ottawa. He has covered the Canadian military and foreign policy from Parliament Hill for over a decade. Among other assignments, he spent a total of 15 months on the ground covering the Afghan war for The Canadian Press. Prior to that, he covered defence issues and politics for CP in Nova Scotia for 11 years and was bureau chief for Standard Broadcast News in Ottawa.