Meeting Canada’s North Atlantic Treaty Organization (NATO) commitment would bring core defence spending to $163.6 billion in 2035-36, according to the Parliamentary Budget Officer (PBO). The office published the estimate in its 6 October primer on Canada’s defence spending commitments.
Canada has pledged total defence spending of 4 per cent of gross domestic product (GDP) in 2030 and 5 per cent by 2035. The primer translates those commitments into core defence spending rising from 2 per cent of GDP to 2.5 per cent in 2030 and 3.5 per cent in 2035. Ancillary spending covers the balance, which Budget 2025 expects existing plans to meet.
Ottawa has not laid out how it will move from 2.5 per cent of GDP in 2030 to 3.5 per cent in 2035. The PBO examined two illustrative paths. Under the gradual scenario, core spending increases from $95.7 billion in 2030-31 to $163.6 billion in 2035-36.
The back-loaded scenario takes spending to $124.1 billion in 2034-35, leaving about $39.6 billion to be added in the final year. The gradual path’s largest annual increase would be about $15.2 billion.
The $163.6 billion total exceeds a reference scenario holding core spending at 2 per cent of GDP by $70.1 billion. The PBO puts the resulting addition to the 2035-36 federal deficit at $63.7 billion, or 1.4 per cent of GDP. Federal debt would be higher by 5.7 percentage points of GDP.
The calculations assume borrowing covers the additional spending. The primer explains that NATO records defence spending in cash when payments occur, while federal budgets allocate capital asset costs over their useful lives.
The accounting measures can differ by about a third. For 2030-31, the PBO compares $95.7 billion in cash spending with a notional accrual figure of $63.2 billion. It says this reinforces the need for the government to publish accrual-based fiscal profiles of its plans.
National Defence’s capital spending undershot projections by $18.5 billion from 2017-18 to 2023-24, the primer notes. Expenditure under its capital vote grew from $4.9 billion in 2022-23 to $8.8 billion in 2024-25, while lapsed funding declined from about $1.0 billion to $0.2 billion.
Canada’s defence industry recorded $14.3 billion in sales in 2022, led by naval vessels, systems and services at 26.7 per cent. Aircraft, uncrewed aerial systems and related services contributed 25.8 per cent. Ontario represented 41.8 per cent of defence expenditure that year; British Columbia’s share reached 13.6 per cent, compared with 9.5 per cent in 2015.
The Defence Industrial Strategy received a $6.6 billion commitment over five years in Budget 2025, although the PBO says Ottawa has yet to publish a full reconciliation. The strategy targets awarding 70 per cent of defence acquisitions to Canadian firms and increasing defence exports by 50 per cent.
Across 117 contracts active in 2024, Industrial and Technological Benefits (ITB) obligations totalled $83.8 billion, a 95 per cent increase in value since 2020. Authority over the ITB Policy transferred to the Defence Investment Agency (DIA) on 16 July 2026.
The primer suggests the DIA is positioned to direct appropriated funds and invest in projects with considerable financial flexibility. It calls clear fiscal reporting arrangements critical to Parliament’s scrutiny. On the primer’s publication date, the government tabled Bill C-40 to establish the DIA as a Crown corporation.
Canada and eight partner countries are planning a Defence, Security and Resilience Bank headquartered in Canada that could begin operating as early as 2027. Its capitalization and member commitments remain unspecified, the PBO says, leaving Canada’s fiscal exposure unclear.
In July, Finance Minister François-Philippe Champagne said Budget 2026 would provide further details on the government’s plans. The PBO says it is modelling the effects of higher defence spending on regions, industries and labour markets.
Related coverage: Read about the Crown corporation legislation in Bill C-40 would let the Defence Investment Agency make loans and buy shares. The Anvil North program guides track the status of purchases identified in the primer.