Canada's Path to NATO's Five Per Cent Pledge: A Decade of Defence Buildout Begins

Canada is in the early stages of executing one of the most significant defence spending increases in its modern history, as the country works to translate its 2025 NATO Summit commitment of five per cent of GDP on defence and related security spending by 2035 into concrete procurement, infrastructure, and personnel decisions. The pledge, made at The Hague summit alongside other alliance members, requires Canada to invest 3.5 per cent of GDP on core defence requirements and an additional 1.5 per cent on defence-related security investments such as critical infrastructure and supply chain resilience.

The commitment came after years of US pressure on European and Canadian allies to lift defence spending toward levels more in keeping with the security environment that has emerged since Russia's 2022 invasion of Ukraine. Prime Minister Mark Carney announced in March 2026 that Canada had reached the alliance's earlier two per cent target, an achievement that came earlier than many observers had projected, and Canadian defence spending has continued to rise as a share of GDP since then.

What the five per cent pledge involves

The Defence Investment Pledge agreed by NATO members at The Hague is structured around two components. The core defence requirement is 3.5 per cent of GDP, calculated using the standard NATO definition of defence expenditure that includes personnel, equipment, infrastructure, and operations. The additional 1.5 per cent covers defence- and security-related investments more broadly, including civil infrastructure with defence applications, supply chain resilience, cyber security, and dual-use industrial capacity.

The target is to be met by 2035, providing a ten-year window for capital programs, force structure changes, and industrial base expansion. The decade-long timeline reflects the practical realities of major defence procurement, which involves long lead times for naval vessels, fighter aircraft, and other major platforms, and the time required to develop industrial capacity, train personnel, and build infrastructure.

For Canada, the commitment represents roughly a doubling of defence spending as a share of GDP from levels prevailing in the early 2020s. In absolute terms, the increase is significant. Defence and security-related spending could reach over $100 billion per year by 2035 in current dollars, depending on economic growth, with significant implications for federal budget allocation, industrial policy, and personnel recruitment.

How Canada reached two per cent

Canada's earlier achievement of the two per cent target was the result of a combination of accelerated capital programs, increased operational tempo, and revised accounting methods that captured a broader range of defence-related expenditures. Major capital programs that contributed to the increase include the Canadian Surface Combatant naval program, F-35 fighter procurement, the P-8A maritime patrol aircraft acquisition, and continuing investment in Arctic infrastructure.

The federal government also expanded operational spending in response to specific commitments, including Canada's enhanced Forward Presence battle group in Latvia, contributions to Operation Reassurance, and continued support for NATO and partner training missions. The Russia-Ukraine war has been a particular catalyst, with Canadian engagement including military aid, training, and intelligence cooperation that has scaled significantly since 2022.

Defence procurement reform has been an ongoing theme, with successive governments seeking to accelerate decision-making and to improve the pipeline of new capabilities into service. The Carney government has continued that effort, with announcements on defence-industrial cooperation with European partners and on accelerated capability acquisition representing a continuation of the trajectory established in earlier years.

The path to 3.5 per cent of core defence

Reaching 3.5 per cent of GDP on core defence spending will require sustained investment across personnel, equipment, and infrastructure. The Canadian Armed Forces has been working to address chronic personnel shortfalls, with recruitment and retention programs being expanded and structural reforms being introduced. Personnel costs are typically the largest single category of defence spending, and force size and structure changes are central to the longer-term calculation.

Equipment programs that are likely to feature in the buildout include additional naval vessels beyond the Canadian Surface Combatant program, expanded Arctic capability, additional fighter aircraft, expanded missile defence, and significant investment in unmanned and autonomous systems. The lessons of the Ukraine war, in particular regarding drone warfare and the importance of munitions stockpiles, have been visible in defence procurement discussions across NATO and are reflected in Canadian planning.

Infrastructure investment is similarly important. Canadian Forces Bases across the country require modernisation, and the increased operational tempo and force size will require expanded basing, training, and logistical capacity. Arctic infrastructure, including expanded Operating Locations and the modernisation of the North American Aerospace Defence Command's northern presence, represents another major investment area.

The 1.5 per cent on related security

The additional 1.5 per cent on defence- and security-related investment is a flexible category that gives governments room to count a range of expenditures toward the overall target. The federal government has been clear that this component will include investments in cyber security, in critical infrastructure protection, in supply chain resilience, and in dual-use industrial capacity. The flexibility of the category has been welcomed by some observers and criticised by others as potentially allowing accounting decisions to substitute for actual capability development.

Canadian investments that could count in this category include expansion of the Canadian Centre for Cyber Security, investment in port and airport security infrastructure, modernisation of Canadian critical infrastructure including the electricity grid and telecommunications networks, and support for industrial base expansion in defence-relevant sectors. The Carney government's broader industrial and infrastructure agenda creates some natural alignment with the security-related investment category.

The 1.5 per cent component also creates opportunities for civilian agencies and provincial governments to participate in the defence-related investment effort. Federal investment in transport infrastructure, in cyber resilience, and in industrial capacity can be designed with security applications in mind, broadening the political and economic constituency for the increased spending.

Industrial implications

The defence buildout creates significant industrial opportunities for Canadian firms across multiple sectors. Aerospace, shipbuilding, vehicles, electronics, cybersecurity, and munitions are all likely to see expanded procurement. Canadian companies will face competition from foreign suppliers, but Canadian content requirements and offset arrangements have historically directed significant work to domestic firms.

The Canadian defence-industrial base has been recovering from the pressures of the post-Cold War period, although it remains smaller and less specialised than the bases of larger NATO allies. Federal investments in industrial capacity, in workforce development, and in research and development will be important to ensure that the defence buildout creates Canadian capability rather than primarily benefiting foreign suppliers. The Munich Security Conference framework Canada joined earlier this year provides one avenue for European industrial cooperation.

Provincial governments have been positioning themselves to capture defence-related investment. Quebec has been particularly active given the province's significant aerospace and electronics sectors, and Premier Christine Fréchette's Paris mission this week explicitly includes defence-industrial cooperation as a theme. Ontario, with major shipyard and vehicle manufacturing capacity, similarly has significant interests in the defence buildout. Atlantic Canadian provinces with naval shipbuilding capacity have benefited from existing programs and are positioning for further investment.

Political and budgetary tensions

The defence spending increase is not without political and budgetary tensions. Federal budgetary capacity is constrained by other major priorities, including healthcare transfers, climate-related investment, housing, and the cost of servicing federal debt. The increase in defence spending will need to be reconciled with other spending pressures, either through increased revenues, reduced spending elsewhere, or larger deficits.

Opposition parties have generally supported increased defence spending, although the specific allocations and procurement choices have at times been contested. The Bloc Québécois has been generally supportive of defence investments that benefit Quebec industries but has been critical of broader federal spending priorities. The New Democratic Party has been more sceptical of the overall defence spending trajectory, although its position has been calibrated by recognition of the security environment.

Provincial governments have welcomed defence investment that benefits their economies but have at times pressed for greater federal capital spending in other areas. The broader federal-provincial fiscal conversation will continue to evolve as the defence buildout proceeds, and the trade-offs across spending categories will be visible in successive budget cycles.

The Parliamentary Budget Officer has been tracking the trajectory of defence spending and has flagged several questions about long-term affordability. The PBO's analysis emphasises that meeting the five per cent commitment requires not only nominal spending increases but also sustained economic growth to maintain a manageable spending-to-GDP ratio. If economic growth slows, the dollar amounts required to meet the target rise faster than the underlying spending plan contemplates, creating additional fiscal pressure that future governments will need to manage.

What's next

The federal government's next major opportunity to set out detailed defence spending plans will come in the upcoming fiscal frameworks and in the next federal budget, expected in the autumn. Specific procurement decisions, capital plan updates, and force structure announcements are expected through the coming year, building on the strategic direction articulated at The Hague.

The Canadian Armed Forces' force structure review, ongoing since the introduction of recent defence policy updates, will shape the deployment of additional personnel and equipment. Major procurement programs will continue to advance, with industry briefings and competitive processes underway across multiple capability areas.

For Canadian businesses, workers, and communities, the defence buildout represents both an opportunity and a long-term commitment. The decade-long timeline allows for substantial industrial and workforce development, but it also requires sustained political commitment across multiple electoral cycles. The Carney government has been clear that the defence investment trajectory is a long-term Canadian commitment, not a short-term political response, and the institutional architecture to deliver on the pledge is being built across departments, provinces, and industry sectors. The years between now and 2035 will determine whether Canada delivers on the most ambitious defence spending pledge in its modern history.