NATO 5% pledge to add $63B to deficit by 2035, budget watchdog says

OTTAWA – Prime Minister Mark Carney’s plan to spend the equivalent of five per cent of GDP on defence by 2035 will push the federal budget deficit up by $63 billion in 2035, according to a new report from Parliament’s budget watchdog.

A report by interim Parliamentary Budget Officer Jason Jacques estimates that gradually ramping up core defence spending to meet the new target will cost the country roughly an extra $33.5 billion a year.

NATO members committed to the steep new five per cent target last year in response to pressure from U.S. President Donald Trump to hike military spending across the alliance.

Carney told NATO allies last June that Canada will increase its core defence spending by 3.5 per cent in the next decade. His government also has committed to defence-related spending worth 1.5 per cent of GDP — spending for things like building transport infrastructure and enhancing emergency preparedness measures.

The Carney government’s first federal budget, released in the fall, vowed to “put Canada on a pathway” to meeting the latest NATO spending target, but it only outlines its top-line spending plans through to 2030.

The 2025 budget also declares that Canada is already on track to meet that 1.5 per cent target for defence-related spending, thanks to existing plans at the provincial and municipal levels.

But Jacques’ report criticizes the government for not publishing any data to support its projections and not supplying it with the information it asked for about its own internal projections.

The PBO instead produced its own estimates, which suggest that ramping up spending over the coming decade to hit the target will push up the federal debt-to-GDP ratio by 6.3 percentage points in 2035.

The scenario assumes defence spending will balloon by an extra $334 billion over the next decade as the government slowly opens the taps to hit the new target by the deadline, and then settles on a core defence spend of about $159.1 billion in 2035-36.

Bloc Québécois MP Gabriel Ste-Marie raised the report at a House of Commons committee Thursday morning.

He said the increase to the deficit is “quite concerning” since the stepped-up spending would add an extra 1.4 percentage points of GDP to the national debt in 2035.

Finance Minister François-Philippe Champagne replied that he has not had a chance to read the PBO document yet and would need to take a close look at it before responding.

“I can say, though, that it is quite true that Canada will have to make an increased level of effort like other NATO countries,” Champagne replied in French. “I’m sure you’re not unaware of that.”

The minister added that he hopes politicians in Quebec will see the increased defence budget as an “economic tool” that small and medium-sized companies can leverage.

The Liberal government has promised to release a Defence Industrial Strategy detailing its plans for the defence sector but has missed its own self-imposed deadline of Christmas 2025.

NATO estimates state that Canada is expected to reach the target of spending 2 per cent of GDP on defence for 2025 — a target Ottawa has consistently failed to reach over the years.

The final accounting that will show whether the country was able to hit that mark is not expected to come out for months.

The Liberal government has insisted it will meet that spending target in the 2025-26 fiscal year. Canada has not devoted such a large portion of GDP to defence since the Cold War.

This report by The Canadian Press was first published Feb. 5, 2026.