Meeting NATO’s 5 Percent Spending Target Could Add $63B to Deficit, PBO Says

Canada’s Parliamentary Budget Officer says meeting NATO’s defence spending target of 5 percent of GDP will add $63 billion to Canada’s federal budget deficit by 2035.

Parliamentary Budget Officer (PBO) Jason Jacques noted in his Feb. 5 report that the government has not published projections on how it will meet the 5 percent target, but estimated the cost will amount to approximately $33.5 billion per year over the next 10 years. That analysis projects the federal deficit could be approximately $63 billion higher by 2035 if spending increases gradually to meet the 5 percent target.

Prime Minister Mark Carney’s first budget released in November has projected a deficit of $78.3 billion for the current fiscal year.

Carney had pledged during his election campaign that he would rebuild the Canadian Armed Forces. After pledging to meet the NATO spending target of 2 percent in early June 2025, Carney backed NATO’s call to raise the guideline to 5 percent later that month.

NATO member states approved the new target at a summit in The Hague, under pressure from U.S. President Donald Trump who has called for alliance members to boost military spending.

Canada’s previous defence spending as a percent of GDP in the 2024-2025 fiscal year was estimated at 1.3 percent.

Canada’s commitment to the 5 percent NATO target includes a goal of 3.5 percent for core military spending and 1.5 for defence-related spending such as security-related infrastructure, telecommunications, dual-use military-civilian projects and securing critical minerals needed for defence and advanced technology supply chains.

The Carney government’s first budget was adopted last fall, pledging to “put Canada on the pathway” to meeting the 5 percent target. The report from the PBO notes the government has not not published any specific data that supports its projections.

The Prime Minister’s Office said last June that progress toward the 5 percent goal will be reviewed in 2029.

Jacques said that the PBO submitted an information request last July to the Department of National Defence asking for “a projected spending profile” on how Canada planned to meet the 5 percent goal but was not provided with one.

“DND instead referenced estimates suggesting that defence spending equivalent to 3.5 percent and 1.5 percent of GDP in 2035 could be approximately $150 billion and $60 billion, respectively, subject to change,” the report said.

The PBO said its analysis was based on the premise that increases in defence spending in the upcoming years to achieve the target will elevate the federal debt-to-GDP ratio by 6.3 percentage points by 2035.