How Canada Plans to Reach the Long-Elusive NATO Spending Target

News Analysis

Something that has long seemed unattainable for successive Canadian governments—meeting NATO’s current defence spending guideline—will be reached this fiscal year, Prime Minister Mark Carney says.

Increasing the pay for soldiers and repairing existing Canadian Armed Forces equipment are some of the measures being planned to reach the target.

Carney announced on June 9 that Canada will spend 2 percent of its gross domestic product on defence this year, beating his initial campaign pledge to meet the target by 2030. This is also seven years earlier than his predecessor, former Prime Minister Justin Trudeau, had initially planned.

Touting the accomplishment could be short-lived. The NATO military alliance is expected to agree later this month to raise the bar to 5 percent, with 3.5 percent dedicated to core defence spending and 1.5 percent to defence and security-related investments, which can include infrastructure.

A single NATO country, Poland, currently exceeds 3.5 percent, while nine members of the alliance are below 2 percent.

According to the latest NATO estimates, Canada spent 1.45 percent of its GDP on defence in 2024. Canada’s GDP for 2024 was approximately $2.2 trillion and its defence expenditures were roughly $35 billion.

Carney’s plan to spend an additional $9 billion on defence in fiscal 2025–2026 will meet NATO’s 2 percent target.

“Our fundamental goal in all of this is to protect Canadians, not to satisfy NATO accountants,” he said during the June 9 announcement in Toronto.

Carney told reporters later that day his government will table supplementary estimates outlining how the money will be spent on defence.

The Department of National Defence (DND) has released the general themes and dollar figures associated with the spending.

The largest spending falls under the “foundational investments” theme, which includes measures to recruit and retain military personnel. DND says $2.6 billion will be spent to reach the Canadian Armed Forces (CAF) authorized strength of 101,500 members by 2030, noting a current shortfall of 13,000.

This would include increasing the salaries of CAF members and boosting the defence civilian workforce to free up military personnel to focus on operational requirements.

The lack of personnel has been a critical issue for the CAF in recent years. DND’s year-end report for 2024 said 72.9 percent of occupations have critical shortfalls.

Recruitment has become a core mission, with new policies implemented to speed up intake. Those include creating a probationary period to enrol new recruits while medical and security assessments haven’t been completed. The CAF has also opened its ranks to permanent residents in recent years.

A leaked military report on recruitment efforts obtained by CBC News in May says many new recruits are quickly leaving after joining the CAF. The main complaint cited in the report is the belief that senior commanders have the wrong priorities.

“Interview evidence shows that there is a perception leadership is prioritizing culture change over critical operational needs like ammunition and equipment,” said the report.

Repair and Maintenance

Other spending under the “foundational investments” theme includes $844 million to repair and maintain CAF equipment and infrastructure.

DND’s year-end report said that none of the CAF fleets in the land, maritime, and aerospace domains had a serviceability rate higher than 50 percent for fiscal 2023–2024 to meet the requirements for training and military readiness.

Carney said Canada doesn’t currently have the necessary parts for repair, adding that CAF assets for “far too long have been allowed to degrade.”

The last item also considered “foundational” includes a $560 million envelope to help DND and CAF upgrade their information technology. More specifically, this would include defending against cyber threats and leveraging data for decision-making. Some of those funds would go to the electronic spying agency, the Communications Security Establishment, which falls under the DND portfolio.

The Liberal government’s plan also includes spending $1 billion to expand and enhance what DND calls “emerging military capabilities,” in a bid to defend the nation, and “especially” the Arctic.

No further details are provided, but the Prime Minister’s Office’s statement on reaching the NATO spending guideline mentions the development of “new drones and sensors to monitor the seafloor and the Arctic.”

Other capabilities supported by the plan include the Arctic Over-the-Horizon radar, the joint counter-drone program, and the long-range precision strike capability, programs that have been previously announced.

Another $4.1 billion in the new spending plan is earmarked to strengthen Ottawa’s relationship with Canada’s defence industry, which includes launching a defence industrial strategy. There is also a stated intent to diversify Canada’s defence partnership “beyond the United States.”

Carney repeated his intention on June 9 to have Canada join the European rearmament plan, saying that “close discussions” are taking place on that topic.

“It’s better to be diversified. It’s better to have options. It’s better to have different supply chains and broader partners,” he said.

How to Fund

Carney was asked by reporters if “creative accounting” would be used to fund his $9 billion plan. He replied in the negative. The prime minister also said new taxes would not be implemented to pay for the new defence expenditures.

“We’re not raising taxes. We just cut taxes,” Carney said, alluding to lowering income tax in the lowest bracket by 0.5 percentage points in 2025 and to 1 percent in 2026. He added that his government has just begun to explore areas for potential savings.

Carney’s announcement comes days before he will welcome G7 leaders to Alberta for a summit. U.S. President Donald Trump, who has long criticized some NATO allies for not pulling their weight in the alliance, will be in attendance.

Carney said the United States is a “fundamental ally” to Canada and that his announcement on defence spending is “very complementary to the process of developing that new economic and security partnership with the Americans.”

Canada will also participate in the NATO summit later this month in The Hague, Netherlands.

NATO defence ministers met last week in Brussels, and the alliance said in a statement it is expected that a new spending guideline raising the bar significantly will be adopted.

Carney told reporters he’s “very comfortable” with the proposal to spend 1.5 percent of GDP on defence and security-related investments, which he described as a “defence industrial pledge.”

“We feel very confident that we are in the zone of already beating that requirement,” he said.

Canada did not have a plan to reach the 2 percent target at this time last year, even after releasing its updated defence policy in April 2024. Under pressure to increase defence spending, Trudeau announced at the July 2024 NATO summit in Washington the target would be reached in 2032.