Canada Meets NATO 2% Target as Allies Aim at Five Per Cent by 2035

Canada reached the longstanding 2 per cent of GDP NATO defence-spending benchmark in March 2026, ending years of falling short, and the Carney government is now navigating the implications of the much larger 5 per cent target that allies committed to at last year's NATO summit in The Hague. The pace of the build-up represents the largest year-over-year increase to Canadian defence spending in generations, with more than $63 billion in incremental commitments across more than a dozen federal departments and agencies in the past 10 months.

For decades, Canada's chronic under-investment in defence was a recurring source of friction with Washington. The Trudeau government's last years and the Carney transition have both been marked by accelerated procurement, expanded recruiting, and increased commitment to NATO and Indo-Pacific deployments. The current trajectory has positioned Canada among the alliance's higher-growth defence spenders, although the structural questions about procurement capacity, recruitment, and industrial base remain substantial.

The 5 per cent commitment, with at least 3.5 per cent allocated to core defence requirements and an additional 1.5 per cent for defence and security-related spending, sets a fiscal and policy framework that will shape Canadian budgets through the 2030s.

What Canada has done

The acceleration to the 2 per cent target involved a combination of new procurement contracts, expanded operational deployments, increased personnel pay, and accelerated infrastructure investment. Major projects include the F-35 fighter procurement, the river-class destroyer program, P-8 maritime patrol aircraft, ground-based air defence systems, and substantial cyber and intelligence capabilities.

The pace was a deliberate political choice. Prime Minister Mark Carney's election platform emphasised defence and security as central pillars of Canadian sovereignty, particularly in the context of trade tensions with the United States and the broader uncertainty of the international system. The 2 per cent milestone was announced in March alongside extensive briefing on the Canadian industrial base implications.

The defence build-up has been politically uncontroversial across most party lines. The Conservatives, NDP, and Bloc Québécois have all supported increased defence spending in broad terms, although the specifics of procurement choices and operational deployments have drawn varying levels of scrutiny.

The 5 per cent commitment

The Hague summit in summer 2025 produced the formal NATO commitment to invest 5 per cent of GDP annually on core defence requirements and defence and security-related spending by 2035. The split between 3.5 per cent for core defence and 1.5 per cent for related spending allows for flexibility in counting infrastructure, cyber, intelligence, and certain dual-use investments.

For Canada, the 5 per cent target represents a substantial increase from current commitments. The federal government has been working through the budgetary and procurement implications, with the major projects legislation announced May 12 including elements that could intersect with defence-related infrastructure investment. The 1.5 per cent component, in particular, offers room to count infrastructure spending that supports both civilian and military objectives.

The commitment is not legally binding in the strictest sense, but NATO benchmarking has political and diplomatic weight. Members that fall short of agreed targets face pressure from allies and reputational consequences in alliance councils. Canada's experience of underperforming on the 2 per cent target for years informed the political choice to commit to the higher trajectory.

What it means for Canadian fiscal policy

Defence spending at 5 per cent of GDP would represent a structural shift in the federal budget. Current Canadian defence spending is in the range of 2 per cent, and the path to 5 per cent involves either substantial revenue increases, reductions in other spending categories, or sustained deficit financing. Carney's broader fiscal framework has emphasised investment-driven growth that can support higher spending without unsustainable debt accumulation.

The trajectory will be reflected in the federal budget cycle. The first Carney budget, expected in June, will set the multi-year fiscal framework for defence and related spending. Subsequent updates will refine the path, with significant procurement decisions to be made throughout the decade.

Provincial governments are watching the trajectory closely. The federal government's increased commitments to defence and security crowd against fiscal room for shared-cost programs in healthcare, infrastructure, and social policy. The federal-provincial conversations on these trade-offs have intensified through the spring.

The procurement challenge

Spending money is one thing. Spending it well is another. Canada's defence procurement history includes high-profile delays, cost overruns, and capability gaps. The push to higher spending levels has put substantial pressure on the procurement system, with Department of National Defence and Public Services and Procurement Canada working through capacity constraints.

Major procurements currently underway include the fighter program transition, naval shipbuilding under the National Shipbuilding Strategy, air defence systems, satellite and surveillance capabilities, and substantial information-technology and cyber investments. Each project carries its own timeline and risk profile.

The Carney government has signalled openness to procurement reforms that could accelerate decisions. The major projects legislation provides a model for streamlined approvals, although defence procurement carries its own statutory framework and security considerations.

The Canadian industrial base

The defence build-up creates significant economic opportunity for the Canadian industrial base. Sectors including aerospace, shipbuilding, advanced manufacturing, cyber and software, satellites, and critical minerals all stand to benefit from defence-related investment. The Carney government has been signalling that Canadian content and supply-chain considerations will be central to procurement decisions.

The aerospace cluster in Quebec, particularly around Montreal, has been a notable beneficiary. The recent Airbus A220-300 deal with AirAsia, the largest commercial aircraft order in Canadian aerospace history, reflects the broader commercial vitality of the sector. Defence procurement intersects with this commercial story.

Shipbuilding capacity on the East and West Coasts has been ramping up, although the National Shipbuilding Strategy has faced its own delays and cost pressures. The 5 per cent trajectory will demand substantial additional industrial capacity, and the federal government has been working with Irving in Halifax, Seaspan in Vancouver, and other shipyard partners on the long-term path.

The recruiting question

Money alone does not produce military capability. The Canadian Armed Forces has been working through a recruiting shortfall that, although improved in recent years, continues to constrain operational capacity. The Carney government has been emphasising pay increases, retention initiatives, and modernised recruiting programs, but the structural challenge remains substantial.

Demographic factors, including an aging population and competition with civilian employers in tight labour markets, complicate the recruiting picture. The defence file's success will depend on whether the institution can attract and retain the personnel needed to operate the new capabilities being procured.

The Reserve Force and the Royal Canadian Mounted Police, which provides domestic security functions alongside the Armed Forces, are also part of the broader security workforce calculation. The 1.5 per cent of GDP for security-related spending opens room for investment across these institutions.

What it means for Canadians

For households, the defence build-up flows through the broader fiscal and economic story. Higher defence spending creates jobs in the industrial base and supports communities around military installations across the country, particularly in Atlantic Canada, Quebec, Ontario, the Prairies, and British Columbia.

For workers in the affected sectors, the spending pipeline represents a multi-year employment opportunity. Aerospace engineers, shipyard workers, software developers, and trades workers in defence-related projects all stand to benefit from sustained investment.

For Canadians more broadly, the build-up is part of a larger statement about the country's place in the international system. The Carney government has been clear that Canadian sovereignty in a more contested world requires substantive investment in defence and security, and the 5 per cent commitment is the most ambitious tangible expression of that conviction.

The European and US context

European NATO members have been ramping defence spending at a faster pace than at any point since the Cold War. Poland, Germany, and the United Kingdom have all announced substantial increases, and the EU's joint procurement and defence-industrial initiatives have been expanding rapidly.

The United States, which has consistently spent above the 2 per cent threshold, remains the alliance's dominant military power. The Trump administration's posture toward NATO has been more transactional than previous US governments, with continued pressure on allies to spend more and to procure American equipment.

Canada's defence relationship with the United States, including NORAD and the broader continental defence framework, remains central. The Carney government has been working to maintain that relationship's substantive integrity even as broader trade and political tensions have complicated bilateral engagement.

What's next

The next major signals will come from the June federal budget, additional procurement announcements through the summer, and the next NATO summit later this year. The 5 per cent trajectory will be reflected in updated planning documents and capital budgets across the next several years.

The recruiting trajectory and the procurement pipeline will be the main operational stories. Whether Canada can translate the 5 per cent commitment into deployable military capability will depend on the success of these underlying components.

For now, the 2 per cent milestone is a measurable achievement that ends a long period of underperformance. The harder work, of meeting the 5 per cent benchmark and translating spending into capability, is just beginning.