Office of the Parliamentary Budget Officer

Canada’s Military Expenditure and the NATO 2% Spending Target: Additional Analysis

This Additional Analysis presents findings from new data on the Department of National Defence’s calculation of total military expenditures between fiscal years 2014-15 and 2016-17.

On June 21, 2022, the House of Commons Standing Committee on Government Operations and Estimates (OGGO) passed a motion requesting that the Office of the Parliamentary Budget Officer (PBO) update Charts 2-1 and 2-2 in its June 2022 report titled “Canada’s Military Expenditure and the NATO 2% Spending Target” to reflect the reporting standard used prior to 2017, and that the update be provided to the committee by September 15, 2022.

In response to this motion, PBO requested, and received, additional information from the Department of National Defence on its calculation of total governmental military expenditures as provided to NATO for fiscal years 2014-15 through 2016-17.

Analyzing the data provided by DND yields the following findings:

National Defence began including military expenditures from other governmental agencies in 2015-16

The suspected major change in the accounting standard used by DND to calculate military expenditures, the inclusion of military expenditures from Other Government Departments, started with the 2015-16 fiscal year, and not the 2017-18 fiscal year as posited. Total military spending, according to the figures reported by DND to NATO, rose from approximately $20.1 billion in 2014-15 to $23.9 billion in 2015-16, for an increase of $3.8 billion.

The large increase in total military expenditures between 2016-17 and 2017-18 is due to a confluence of factors, but not a change in definition

While a minor change in the accounting definition of military expenditures did occur between these two fiscal years, namely the inclusion of costs in other government departments for the administration of military pensions, the additional amounts are not material. Given this, changing Charts 2-1 and 2-2 as per the text of the motion would not produce a visible difference in either chart.

The reasons for the large increase of approximately $7.3 billion between 2016-17 ($23.5 billion) and 2017-18 ($30.8 billion) are attributable to several factors:

  1. Increases in military spending from other government departments;
  2. Increases in spending on military personnel, including a one-time additional contribution of $1.8 billion to the Canadian Forces Superannuation Act; and,
  3. Increases in expenditures on procurement and construction relating to planned capital projects and for capital projects introduced under the 2017 defence policy Strong, Secure, Engaged.