Question Period Note: NATO Funding (NATO 2%)

Why isn’t Canada pulling its weight when it comes to contributing to NATO and meeting the 2% NATO defence spending target?

• Canada is committed to making the investments necessary to protect Canadians, defend our North, and support our Allies.
• Our planned investments have increased Canada’s forecasted defence spending from $41 billion in 2024-2025 to $57.8 billion in 2029-2030.
• Yet, we know that we need to invest more, invest faster, and invest smarter.
• This includes strengthening the foundation of National Defence, through investments in our people, capabilities, infrastructure, and digital capabilities.
• We also need a clear strategy that allows Canadian industry to respond effectively to our new geo-political reality.
• That is why we are developing a Defence Industrial Strategy, to bring strategic coherence to our efforts to reach the 2% defence investment commitment.
• The Strategy will help strengthen Canadian industrial capacity, so that increased defence investment benefits the broader Canadian economy.
• It will also present a significant opportunity for Canadian industry, so that we continue to create jobs and foster greater innovation here at home.
  If pressed on specific NATO contributions:
• Canada’s financial and operational contributions to NATO are recognized by our Allies as a significant part of the Alliance’s contributions to peace and security in Europe and beyond.
• Beyond the direct support we provide to NATO missions, we are supporting our Allies by investing in modern capabilities.
• This includes the procurement of up to 16 P-8A Poseidon patrol aircraft, 9 Multi-Role Tanker and Transport aircraft, and 11 MQ-9B remotely piloted aircraft.
• We will also invest in new capabilities like long-range missiles, modernized artillery capabilities, and ground-based air defence to defend critical infrastructure.
• Canada is committed to collective defence and always considers interoperability with our Allies when making major investments.

Parliamentary Budget Officer (PBO) Report
* The PBO published a report on October 30, 2024, entitled The Fiscal Implications of Meeting the NATO Military Spending Target in follow-up to its update in July 2024.
* The report states that additional spending will be required to meet our NATO 2% commitment but concludes that such expenditures are possible without unduly impacting Canada’s deficit-to-GDP ratio.
* It reiterates a position that the PBO took in summer 2024, that Our North, Strong and Free (ONSAF) underestimates GDP and that, as a result, Canada’s defence budget would have to rise to $81.9 billion by 2032-33 to meet the NATO 2% target. This would represent a significant increase from the $57.8 billion projected for 2029-30 in ONSAF.
* The PBO labels the ONSAF GDP forecast as “erroneous” as it assumes a nominal GDP growth rate of 1.7%, which “does not even keep pace with inflation and therefore assumes a 4-year economic recession, almost twice the length of the country’s longest recession in the last 40 years”.
* Using PBO’s GDP forecast, Canada’s projected defence spending-to-GDP ratio changes to 1.58% by 2029-30 (compared to the ONSAF projection of 1.76%).
* The PBO relies on its own methodology for calculating GDP, which it says is broadly similar to the Department of Finance’s methodology.
* National Defence uses Canadian GDP figures provided by NATO, which use several data sources, including the Organization for Economic Co-operation and Development (OECD), and is a standard practice for NATO allies.

Responsible Principals: Assistant Deputy Minister (Finance), Assistant Deputy Minister (Policy), Vice Chief of the Defence Staff

May 28, 2025

Quick facts

Defence Spending
* 2024: Canada’s defence spending is projected to reach 1.45% of its Gross Domestic Product (GDP), with 17.85% devoted to major equipment, up from 1.31% of GDP and 15.1% on major equipment in 2023.
North Atlantic Treaty Organization (NATO) Common Funded Budget
* In addition to investing in their own armed forces, all NATO Allies contribute directly to NATO’s budget based on an agreed cost-share formula derived from Gross National Income. Canada is the 6th largest contributor to NATO’s common funded budget.