The Parliamentary Budget Officer (PBO) has released a new report assessing the fiscal sustainability of Canada’s commitment to meet NATO’s military spending target of 2% of GDP by 2032-33.
In April 2024, the government released a new defence policy, Our North Strong and Free: A Renewed Vision for Canada’s Defence (ONSAF), which projected military spending to reach 1.76% of GDP by 2029-30.
The government has not released any figures showing how it plans to meet the 2% target by 2032-33. In addition, the figures released in the ONSAF forecast are based on erroneous GDP projections.
“Based on our analysis and independent GDP projections, the government’s latest military spending forecast reaches only 1.58% of GDP by 2029-30, which means military spending will have to be increased by 0.42 percentage points of GDP within the following three years to meet the target by 2032-33,” adds Mr. Giroux.
The PBO’s report evaluates a scenario where projected military expenditures under the government’s new defence policy are fully realized through the 2029-30 fiscal year and then rise to hit the 2% target by 2032-33.
"To meet Canada’s NATO spending commitment, military expenditures need to rise to $81.9 billion by 2032-33, which is nearly double the $41 billion projected for 2024-25," says Yves Giroux, PBO.
Despite the sharp increase in defence spending required to reach the NATO target of 2% of GDP, Canada’s debt-to-GDP ratio is still expected to decline, reaching 38.2% by 2032-33, just above the baseline level of 36.6%. However, the deficit-to-GDP ratio faces more pressure, exceeding 1% in the final years of the projection, driven by the additional military expenditures necessary to meet NATO’s requirement.