In the wake of president-elect Donald Trump’s win, Canada’s defence spending is back in the spotlight.
During his first term, Trump was highly critical of NATO allies’ failure to meet the military alliance’s spending target of two per cent of GDP. Since then, the majority of NATO allies have met or exceeded the target.
But Canada still remains well short of it, leading many to expect it will face intense pressure to meet the target once Trump is president.
“If president-elect Trump wants to see us get to two per cent by the time he leaves the White House, then we’re going to need to get this done within four years or so,” said Tim Sargent, director of the domestic policy program at the Macdonald-Laurier Institute.
Policy experts say Canada would face significant political, fiscal and operational challenges meeting the defence spending target on this short timeline.
“That doesn’t mean that it can’t be done … but it will mean giving up on doing some things,” said Sargent, noting Ottawa would need to increase defence spending by 0.7 per cent of GDP.
It is not clear where government would find that level of funding.
“That’s not the kind of money you’re simply going to find by reducing travel or reducing the amount of spending on consultants,” Sargent said.
Political trade-offs
In a July update, the Parliamentary Budget Officer said Canada would spend $39 billion on military expenditures, or 1.3 per cent of GDP, in the 2024-25 fiscal year. Canada would need to spend an additional $21 billion annually to meet NATO’s target.
Coming up with this funding would require hard choices.
“The trade-off would be between deficit financing, higher taxes and other programs,” said Philippe Lagassé, a professor of international affairs at Carleton University. “If the government was willing to incur more debt it could reach two per cent without increasing taxes or cutting other programs.”
The Trudeau government has already faced criticism for running an estimated $46.8-billion deficit in 2023-24, exceeding its own “fiscal guardrail” of $40 billion.
But cutting spending on domestic programs would also be a tough sell, says Sargent. “Nobody wants to make [Old Age Security] less generous,” he said, referring to Canada’s costliest social program. “That is a very difficult category to touch.”
“If it raised taxes, it could avoid the debt or program cuts,” says Lagassé. But this would also be politically difficult. The highest income tax rates in most provinces already sit at or near 50 per cent. Meanwhile, Canada is facing calls to cut corporate taxes to boost the country’s competitiveness in the face of potential US tariffs and a productivity crisis.
Christian Leuprecht, a professor at Queen’s University’s School of Policy Studies, says raising military expenditures is politically and fiscally difficult in any scenario.
“There’s no votes to be had by spending on defence,” he said. “So this is why, notoriously, Canadian politicians of both political stripes don’t really like spending on defence.”
A starting point
As a starting point, though, Ottawa should cancel planned defence spending cuts, Leuprecht says. Currently, Ottawa plans to cut defence spending in targeted areas by $810 million in 2024–25, $851 million the following year, and a further $908 million the year thereafter.
Despite these targeted cuts, the Department of National Defence says it plans to boost overall military spending to $57.8 billion by 2029-2030 — an increase of $18.8 billion from the Parliamentary Budget Officer’s 2024-2025 forecast.
“I mean, it’s hypocritical for the government to talk about increasing defence spending when the government is actively cutting defense,” Leuprecht said.
Even if Ottawa achieves this 2030 target, Canada’s military expenditures would only equal an estimated 1.8 per cent of GDP, according to the Parliamentary Budget Officer’s July update.
And it is not clear it will meet that goal.
Leuprecht says that, in addition to the electorate not being “predisposed towards defence,” the Trudeau cabinet is not either.
“There are anti-militarists in this cabinet that will not invest in defence,” he said. “The Prime Minister already has trouble keeping caucus on side. If the Prime Minister made a serious investment in defence, I think there are people in cabinet who would try to run him out of town.”
In a statement to Canadian Affairs, the Department of National Defence said it continues to direct spending toward top strategic priorities.
“We remain committed to finding ways to make our operations more efficient and focusing our dollars on achieving our top defence priorities,” department spokesperson Cheryl Forrest told Canadian Affairs in an email.
A problem of allocation
If the defence budget were rapidly increased to meet the NATO target, actually spending the money would be a struggle, sources say.
“The department is 15,000 people short,” Leuprecht said. This presents constraints for procurement, staffing and operational readiness.
“The problem is the department spent about $5 billion in capital for the last 20 years,” Leuprecht said. “So it suggests that under current policies and with current staffing, it would be very difficult for the department to spend more. You could give them … an extra $10 billion on capital, and the department would likely not be able to spend it.”
Sargent and Lagassé expressed similar concerns.
“It’s not easy for DND to get money out the door in the area of capital spending,” Sargent said.
“DND is well-known for getting money to spend on capital and then having to, in fiscal speak, re-profile … to find that they can’t actually spend this money in the current year.”
“New projects or programs would take time and most likely encounter delays, unless we were willing to sacrifice some processes and procedures that are meant to ensure we spend wisely,” Lagassé says.
Leuprecht says fixating on arbitrary spending targets is less important than establishing a sensible, comprehensive defence strategy.
“We need a strategy. Like, to what end are we investing? The organization, in my view, needs a 15-year strategy to rebuild.”
Leuprecht also stressed the need for sustained investment.
“The way you invest in defence [and] build a sustainable industrial base is through very long-term contracts, because the investments and outlays for companies are huge,” he said.
Sargent references the US as an example of defence expenditures boosting a broader national economy.
“We need to do the same thing, because industry policy works when you’re playing to a country’s existing strength,” he said, pointing to armoured vehicles and aerospace as two industries in which Canada has been a leader.
Canada could also look to one of its European allies as a model.
“When Ukraine was invaded, the German government put €100 billion on the table as a one-time investment in defence,” Leuprecht said. “[It then grew] the baseline,” he said referring to the annual defence budget.
“Precisely because they knew growing the baseline and investing in the organization are two separate problems.”
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