Canada to Meet 2% NATO Defence Spending Target: What It Means & How It Will Happen
- Sahilpreet
- Jun 13
- 5 min read
Canada Moves to Meet NATO's 2% Target — A Major Shift in 2025
For years, Canada has faced increasing international pressure over its defence spending, specifically, its failure to meet NATO's long-standing benchmark of spending 2% of national GDP on defence. In 2025, that's changing.
Former Bank of Canada governor and potential political contender Mark Carney has now confirmed: Canada intends to hit NATO’s 2% defence spending target this fiscal year.
This is more than a political soundbite. It represents a historic shift in Canada’s fiscal policy, foreign relations, and military investment strategy, with ripple effects across the economy, budget, industries, and global alliances.
In this article, we’ll break it all down:
What is the NATO 2% Defence Spending Target?
NATO — the North Atlantic Treaty Organization — requires its member states to spend a minimum of 2% of their Gross Domestic Product (GDP) on defence. This target has existed since 2006, but became far more politically charged after pressure from both U.S. and European allies.
The goal is simple on paper: ensure every NATO nation contributes equitably to collective defence and doesn’t rely disproportionately on the U.S. military umbrella.
For context:
🇺🇸 The United States already spends ~3.5% of GDP on defence.
🇬🇧 The United Kingdom and several Eastern European NATO members now regularly exceed 2%.
🇩🇪 Germany, after decades below 2%, has recently committed to meeting it post-Ukraine invasion.
🇨🇦 Canada has consistently trailed, hovering around 1.3% to 1.4% of GDP over the last decade.
Hitting 2% for Canada would represent a massive spending increase — an additional $15–20 billion annually, depending on GDP fluctuations.
Quick Fact: At 2% of GDP, Canada’s defence budget would rise from ~$26B CAD to over $50B CAD annually, depending on final GDP figures.
Why Has Canada Lagged for So Long?
There are multiple reasons Canada historically fell short:
Geography: Protected by oceans and its proximity to the U.S., Canada faces fewer direct threats than European NATO partners, who sit much closer to flashpoints like Ukraine, Russia, and the Middle East.
Public Priorities: Health care, social programs, and infrastructure have often dominated federal spending priorities, while defence remained politically low-risk to underfund.
Political Calculus: Past governments have calculated that NATO’s collective defence umbrella (largely funded by the U.S.) allows Canada to focus its limited resources elsewhere while still reaping NATO security benefits.
Military Readiness Challenges: Years of underinvestment have left Canada’s armed forces facing aging equipment, personnel shortages, and procurement backlogs — making rapid scale-ups difficult.
But global events have reshaped the narrative.
Example Scenario: Russia’s invasion of Ukraine, rising Chinese military assertiveness, Arctic sovereignty challenges, and increasingly unstable global alliances have put Canada’s low defence spending under harsh scrutiny from both allies and its own domestic defence analysts.
What Carney & Ottawa Plan to Do in 2025
Mark Carney — respected globally as Canada’s former central banker and Bank of England governor — has lent significant political and fiscal credibility to the government’s plan. His confirmation signals not only intent but a serious roadmap.
The Funding Pathway
Multi-Year Budget Commitment
Ottawa will introduce a phased defence funding boost in its 2025 federal budget. This includes long-term appropriations that legally commit funds for multi-year military procurement programs.
Capital Projects Acceleration
Large capital projects will move forward faster, including:
NORAD modernization
Submarine fleet upgrades
New Arctic patrol vessels
F-35 fighter jet procurement (currently underway)
Cybersecurity infrastructure expansion
Satellite defence systems for Arctic monitoring
Personnel Expansion
Recruiting targets will increase for both full-time and reserve Canadian Armed Forces, addressing long-standing personnel shortages.
Domestic Industry Partnerships
Canadian defence contractors will see substantial contracts awarded to build and maintain equipment domestically, bolstering both capacity and Canadian jobs.
NATO Collaboration Spending
Funds will also go towards joint NATO exercises, Baltic deployments, NATO intelligence-sharing platforms, and expanded Eastern European commitments.
Pro Tip: Carney’s influence signals a shift toward "financially credible militarization" — aggressive spending increases, but with carefully planned capital project controls to avoid past procurement scandals that plagued Ottawa.
How Will Canada Afford This Massive Spending Shift?
Meeting 2% GDP defence spending represents billions in new annual expenditures — so how will Ottawa balance this with ongoing domestic priorities?
Three Main Financing Sources:
Debt Management: Canada’s relatively stable debt-to-GDP ratio gives some flexibility to borrow for major defence investments without risking its AAA credit rating. Bond markets remain favourable for sovereign borrowing.
Revenue Reallocation: Ottawa may restructure certain non-essential spending and redirect portions of surpluses or windfall tax revenues (from higher corporate earnings and natural resource royalties) toward defence.
New Revenue Streams: There’s growing debate around new revenue measures such as luxury taxes, wealth taxes, or closing corporate loopholes — some of which could help fund expanded defence budgets without touching middle-class tax rates.
Fiscal Balancing Act
The Trudeau government (or any future federal government) faces a tightrope:
Avoid triggering recessionary pressure by cutting essential domestic services.
Avoid voter backlash by not dramatically raising personal income taxes.
Still satisfy NATO commitments while protecting Canadian sovereignty and Arctic interests.
Quick Fact: The Parliamentary Budget Officer (PBO) estimates that meeting 2% will cost $15B to $17B CAD more per year starting in 2025.
What This Means for Canadians: Economic, Business & Global Impact
This pivot to serious military spending has ripple effects that extend beyond politics:
Economic Stimulus for Canadian Defence Contractors
Defence industry players like CAE (aerospace), Irving Shipbuilding (naval), General Dynamics Canada (communications), and multiple cyber defence firms stand to win huge procurement contracts. Small to medium-size contractors specializing in components, software, surveillance, and supply chains will also benefit.
Example: Ottawa’s planned submarine modernization alone is expected to generate thousands of jobs across Canadian shipyards and supply chains over the next decade.
Supply Chain Strains
Rapid procurement growth may challenge Canada’s manufacturing and skilled labor supply. Delays in previous programs (e.g. Coast Guard ships, Arctic vessels) show how capacity constraints can slow implementation unless managed aggressively.
Possible Taxpayer Pushback
Some Canadians may oppose major defence spending increases if it threatens social services or risks higher personal tax burdens. Ottawa’s messaging will likely emphasize job creation, national security, Arctic sovereignty, and allied credibility to maintain public support.
Strengthened NATO & Global Position
Finally, hitting 2% removes Canada from NATO’s "laggards" list, strengthening its voice at global defence tables. With Russia’s aggression and China’s growing reach, Canada's Arctic and cyber vulnerabilities are now fully part of global defence planning.
Conclusion: A New Era in Canada’s Defence Posture
For decades, Canada has operated under the comfortable assumption that geography and U.S. alliances provided security on the cheap. That chapter is closing.
2025 marks the beginning of Canada’s serious re-entry into global military readiness — meeting NATO’s 2% target for the first time. While the transition won’t be instant or painless, the roadmap is now laid out. Between Carney’s fiscal credibility, growing geopolitical threats, and NATO partner pressure, the political will is finally aligned.
For Canadians, this means both opportunity and responsibility: higher public investments, more defence sector growth, and an elevated role in global security partnerships for years ahead.
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