Report

Fiscal Implications of Meeting NATO’s 5% Commitment

Feb 5, 2026

This report examines the fiscal implications of Canada’s commitment to meet the North Atlantic Treaty Organization defence spending pledge of 5 per cent of gross domestic product by 2035.

Highlights

Despite indicating in Budget 2025 that accelerating investments will “put Canada on a pathway” to meet the North Atlantic Treaty Organization (NATO) 5 per cent commitment by 2035, the Government has not published supporting projection details.
PBO estimates that meeting the NATO 5 per cent commitment by gradually increasing core defence spending from 2.0 per cent in 2025 to 3.5 per cent of gross domestic product (GDP) by 2035 will require additional defence spending averaging approximately $33.5 billion per year in cash expenditures over the next 10 years.
PBO estimates that the additional core defence spending required to meet the NATO 5 per cent commitment will increase the budgetary deficit by $63.0 billion (1.4 percentage points of GDP) in 2035-36 and the federal debt-to-GDP ratio by 6.3 percentage points of GDP in 2035-36.