‘Fundamental’ political shift required to overcome $40 billion NATO spending gap: analyst

Canada will need a profound shift in political priorities if the country is to ramp up spending to meet its international security obligations.

New projections released by the Office of the Parliamentary Budget Officer reveal the massive spending gap Canada needs to overcome in order to meet its military commitment to its NATO allies.

According to estimates by the PBO, the federal government needs to double the amount it currently spends on the military under its two-per-cent-of-GDP NATO obligation.

After facing months of pressure from allies, the Prime Minister announced at July’s NATO Summit, that Canada would meet the target by 2032.

According to Department of National Defence figures, the federal government will spend $41 billion on the military for the 2024 fiscal year.

Defence spending accounts for approximately seven per cent of the total federal budget, but 1.39 per ccent of the GDP.

The PBO estimates that to reach the NATO target, spending on infrastructure, equipment and staff would have to ramp up over the next eight years to at least $81.9 billion a year by 2032.

Parliamentary Budget Officer Yves Giroux says that massive increase in defence spending will make it challenging for the Trudeau government to adhere to its fiscal goal of keeping deficits to one per cent of GDP.

“It’s possible, but it’s a matter of choice. If Canada says our priority is to meet its NATO target, it may mean spending less on other areas or increasing taxes.”

Giroux says even if the money is allocated, it is uncertain if the military has the capacity to absorb the rapid rise in investments.

“It begs the question: is the military capable of spending that much money effectively?” said Giroux in an interview with CTV National News.

“Do we have sufficient military personnel? Can the Canadian armed forces recruit that many people? Can we as a country procure the right equipment in that time frame to spend that money? The needs are clearly there, but it’s a question of capacity,” Giroux said.

Defence Minister Bill Blair says the gap may not be as wide as the PBO is forecasting. While the PBO uses numbers in line with the federal finance department, NATO calculates its target for member nations using a subset of data gleaned from the Organisation for Economic Co-operation and Development. (OECD)

“The two per cent is a NATO spending metric … The PBO in his calculation frankly demonstrates far more optimism in the Canadian economy,” said Blair in a scrum with reporters on Parliament Hill.

“We made it very clear that Canada commits to achieving the two per cent that NATO has prescribed.”

Blair said that he will take a close look at the PBO’s calculations but made it clear that the investment target Canada needs to meet will be the one that the North Atlantic Treaty Organization sets.

However, while the PBO has provided a price tag, Blair’s office did not provide a dollar figure for spending.

The government released its new defence policy this past spring. Our North Strong and Free (ONSAF) provides a detailed spending plan, but only for the next six years. ONSAF projects military spending to reach $57.8 billion by 2029-30 which amounts to 1.76 per cent of GDP.

The policy document did not present a plan to reach the two per cent target. Since then, Canada has announced intentions to replace its aging fleet of submarines but have not put forward a dollar figure or date for procurement.

NATO leaders initially agreed to the 2 per cent defence spending pledge in 2014. At the time, under the leadership of Conservative Prime Minister Stephen Harper, Canada’s defence spending was at one per cent.

A decade later, at NATO’s 75th anniversary summit in July, Prime Minister Trudeau set Canada’s 2032 timeline. The date was set after months of pressure from NATO allies. Canada was also called out on the sidelines of the summit held in Washington, D.C., by several U.S. congressional leaders, including the Speaker of The House. Republican House Speaker Mike Johnson accused Canada of “riding on America’s coat tails.”

“They have the safety and security of being on our border and not having to worry about that. I think that’s shameful,” said Johnson criticizing Canada for not doing its part.

As of this year, Canada is one of nine nations out of 32 which have yet to reach that target.

“We are a laggard,” said David Perry, president of the Canadian Global Affairs Institute. He points out several European NATO members have universal healthcare and strong social programs and are still able to meet their security obligations.

“Canada whining that it’s hard for us and it’s a lot of money – I don’t think it gets us much sympathy from allies that are making tough decisions to do both. To deliver to their population social programs, and live up to their security,” Perry said.

The defence analyst is also concerned that Canada’s eight-year timeline of reaching its NATO commitment will hamper trade talks with its biggest ally.

Both Democratic Vice-President Kamala Harris and former Republican President Donald Trump have said they will renegotiate the Canada-U.S.-Mexico free trade agreement when it comes up for review in 2026.

Perry says Canadians are unaware of how “deteriorated” its armed forces have become. He says despite record investments from the Trudeau government, the military has been unable to use much of its funds.

Perry points out there are not enough personnel to meet the 1.76 per cent target set out in ONSAF – never mind a two per cent target.

Figures provided by National Defence indicate that the force is facing a shortage of 15,500 soldiers.

Perry says spending two per cent GDP on the military will require a fundamental political shift.

“It’s not a question of spending a little more here or there. It’s a fundamentally different military. It would have a larger navy, have a bigger international presence and be kept at higher level of readiness,” Perry said.

“It would require a different mindset of how much an important institution the military is, because it hasn’t been prioritized to the level it needs to be to spend two per cent GDP.”