Question Period Note: Defence investments (includes NATO commitments)

How does spending on National Defence benefit Canadians and how can Canada realistically meet a revised Defence spending target of 5% by the end of 2035?

• We are taking important steps to rebuild, rearm, and reinvest in the Canadian Armed Forces.
• In fact, the National Defence budget has increased to $44.3 billion this fiscal year, as we make foundational investments in our forces.
• This includes investments to expand and enhance military capabilities, strengthen Canada’s defence industries, and diversify our defence partnerships.
• These investments will bring Canada’s defence spending to 2% of GDP within the current fiscal year.
• Further, in June, the Prime Minister announced that Canada had agreed with NATO Allies to invest 5% of annual GDP in defence by 2035.
• To meet this pledge, Canada will invest 3.5% of GDP in core military capabilities and a further 1.5% in critical defence and security-related infrastructure.
• Major investments range from modern aircraft to submarines capable of patrolling our three coastlines.
• Indeed, to advance the acquisition of our next fleet of submarines, we recently identified Thyssen Krupp Marine Systems and Hanwha Ocean as qualified suppliers.
• Taken together, these investments reflect that the Government is committed to making the investments necessary to protect Canadians, defend our North, and support our Allies.

• On June 25, 2025 Canada and its NATO Allies agreed to a new Defence Investment Pledge of investing 5% of annual GDP by 2035.
• As part of this 5% pledge, Canada will invest 3.5% of GDP for core military capabilities, expanding on the June 9, 2025 announcement.
• This includes further investments in Canadian Armed Forces, by modernizing military equipment and technology, building up Canada’s defence industries, and diversifying defence partnerships.
• An additional 1.5% of GDP will be dedicated to investments in critical defence and security-related expenditure, such as new airports, ports, telecommunication, emergency preparedness systems, and other dual-use investments which serve defence as well as civilian readiness.

Our North, Strong and Free (ONSAF)

• Measures to increase and accelerate defence investment will complement Canada’s Defence Policy: ONSAF.
• Announced on April 8, 2024, ONSAF features six major themes:
  • Supporting our people;
  • Strengthening our foundations;
  • Building an innovative industrial base;
  • Defending Canada;
  • Defending the Arctic and North America; and
  • Defending Canada’s global interests and values.
• Further, ONSAF included investments of:
  • $8.1 billion over five years (fiscal year 2024-25 to 2028-29); and
  • $73 billion over twenty years (fiscal year 2024-25 to 2043-44).

Parliamentary Budget Officer (PBO) Analysis

• 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 stated that additional spending would be required to meet the NATO 2% commitment but concluded that such expenditures are possible without unduly impacting Canada’s deficit-to-GDP ratio.
  • However, it reiterated a position that the PBO took in summer 2024, that ONSAF underestimates GDP growth and that, as a result, Canada’s defence budget would have to rise significantly to meet the NATO 2% target.
  • The PBO labelled the ONSAF GDP forecast as “erroneous” as it assumed 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”.
• 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.
• While the timeline has accelerated for Canada to reach 2%, the PBO’s criticism of National Defence spending projections is likely to endure as long as methodological differences persist.
• The PBO is preparing an updated report on Canada’s defence spending, which is expected to be released in fall 2025.

Responsible Principal: Assistant Deputy Minister (Finance)

Quick facts

Defence Spending

• 2025-26: Canada’s defence spending is projected to reach 2.01% of its Gross Domestic Product (GDP), with 22.6% devoted to major equipment, up from 1.47% of GDP and 18.3% on major equipment in fiscal year 2024-25.

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.