NATO's Five Per Cent Target Tests Canada's Defence Budget

Canada faces a defence spending challenge of historic proportions after NATO allies committed to investing 5 per cent of GDP on core defence and defence- and security-related spending by 2035, a target that more than doubles the previous benchmark and arrives just as Ottawa reaches the old standard for the first time in a generation. The pledge, made at the 2025 NATO summit in The Hague, sets a trajectory that will test the fiscal resolve of every member, Canada included.

The new 5 per cent goal supersedes the 2 per cent benchmark codified at the 2014 Wales summit, a target that for years many allies, Canada among them, struggled to meet. Moving the goalposts so dramatically reflects a transatlantic alliance grappling with a more dangerous security environment and mounting pressure to demonstrate that its members will pay for their own defence.

For Canada, the timing is striking. The country says it reached 2 per cent of GDP on defence for the first time since the fall of the Berlin Wall, a milestone achieved only as the alliance raised its sights far higher. The gap between where Canada now stands and where NATO wants it to be by 2035 frames one of the most consequential budget debates of the decade.

From Wales to The Hague

The evolution of NATO's spending targets tells the story of an alliance under growing strain. The 2 per cent benchmark codified at the 2014 Wales summit set a floor that proved aspirational for many members, with several allies falling short year after year despite repeated commitments to close the gap. For a decade, 2 per cent was the standard against which national contributions were measured.

The 2025 summit in The Hague rewrote that standard. Allies committed to investing 5 per cent of GDP annually on core defence and defence- and security-related spending by 2035, a sweeping increase that signals a fundamental shift in the alliance's expectations. The new figure folds together traditional military spending with a broader category of security-related investment, but the headline ambition is unmistakable.

The leap from 2 per cent to 5 per cent reflects an alliance responding to a security landscape transformed by the war in Ukraine and persistent tensions with Russia. The higher target is meant to ensure that NATO's collective capabilities keep pace with the threats it faces, and to answer demands, particularly from Washington, that allies shoulder a far greater share of the burden.

That doubling and then some of the benchmark sets a steep climb for every member. Reaching 5 per cent by 2035 implies sustained increases over a decade, a commitment that will require difficult trade-offs against other national priorities and that will test the political durability of the pledge in capitals across the alliance.

A milestone for the alliance in 2025

The Hague commitment did not emerge in a vacuum. In 2025, for the first time since the 2 per cent target was set, all 32 member states met or exceeded 2 per cent, a collective achievement that marked a turning point for an alliance long dogged by laggards. Reaching universal compliance with the old benchmark gave NATO the credibility to set a more ambitious one.

The financial scale of that effort was substantial. European allies and Canada collectively invested about $574 billion in defence in 2025, a figure that represented a 20 per cent real-terms increase over 2024. That kind of year-over-year jump underscores how quickly spending has accelerated across the alliance as members respond to a more threatening environment.

New NATO figures show European allies outpacing earlier spending expectations, a development that reflects a continent rearming with unusual speed amid uncertainty about the future of the transatlantic relationship. The surge in European defence budgets has shifted the alliance's internal dynamics, with members moving faster than many analysts had anticipated.

That acceleration unfolds amid turbulence in the transatlantic alliance, as questions about American commitment and the distribution of burdens strain relationships that have anchored Western security for decades. The push toward 5 per cent is, in part, a response to that turbulence, an effort to shore up the alliance by demonstrating shared resolve at a moment of strategic doubt.

Canada's historic 2 per cent moment

For Canada, reaching the 2 per cent threshold is a genuine landmark. The country says it reached 2 per cent of GDP on defence for the first time since the fall of the Berlin Wall, ending a long stretch in which Canadian spending lagged the benchmark and drew criticism from allies. The achievement marks a significant shift in Ottawa's defence posture.

The figures behind the milestone are considerable. Canada has invested over $65 billion in defence and security over the past year under Prime Minister Mark Carney, a level of spending that underpins the claim to have hit 2 per cent and that represents a major commitment of public resources. Reaching the benchmark required a deliberate and costly effort.

Yet the celebration is tempered by the realisation that 2 per cent is no longer the goal. Having just arrived at a standard set in 2014, Canada now confronts a 2035 target that is two and a half times as demanding. The milestone, hard-won as it is, marks not the end of a journey but the beginning of a far steeper one.

That repositioning of the target reframes Canada's achievement. What might once have been a moment of arrival becomes instead a staging point for a much larger undertaking, raising immediate questions about how a country that struggled for decades to reach 2 per cent will find the resources to push toward 5 per cent over the coming decade.

The budget choices ahead

The path from 2 per cent toward 5 per cent implies major budget choices, and those choices land at a particularly awkward moment. Canada has slipped into a first-quarter technical recession, and committing to a sustained, decade-long surge in defence spending against that backdrop forces difficult decisions about priorities, taxation and borrowing.

The fiscal arithmetic is daunting. Lifting defence spending from 2 per cent to 5 per cent of GDP would require finding very large sums year after year, money that must come from new revenue, redirected spending or added debt. Each of those routes carries political cost, and the competition with other priorities such as health care, housing and social programmes will be fierce.

Among the spending priorities flagged are Arctic and sovereignty, areas of growing strategic importance as the warming North opens to navigation and competition. Defending Canada's vast northern reaches and asserting sovereignty over Arctic waters demand significant investment, and these requirements sit near the top of the list as Ottawa contemplates its expanded defence ambitions.

Shipbuilding and procurement round out the priorities, representing the practical machinery through which higher budgets translate into capability. While the mechanics of procurement are a story in their own right, the broad point is that reaching toward 5 per cent will require not just more money but the ability to spend it effectively on ships, equipment and the broader apparatus of defence.

Managing the pressure from Washington

Hovering over Canada's defence calculations is the persistent matter of U.S. pressure. Washington has long pushed allies to spend more, and the move to a 5 per cent target reflects that pressure made manifest across the alliance. For Canada, managing the American expectation is a recurring feature of the defence file, intertwined with the broader, often tense, bilateral relationship.

That pressure carries particular force at a time of friction in the transatlantic alliance and in Canada-U.S. relations more broadly. With trade disputes already straining the bilateral relationship, the defence spending question becomes one more arena in which Ottawa must respond to American demands while protecting its own fiscal and political interests.

Canada's recent achievement of 2 per cent can be read in part as an answer to that pressure, a demonstration that Ottawa is prepared to meet its commitments. But the higher 5 per cent target ensures that the pressure does not abate, keeping defence spending as a live point of contention between the two neighbours for years to come.

Navigating that dynamic requires Ottawa to balance alliance solidarity and the desire to maintain good standing in Washington against the domestic realities of a strained economy. The Carney government must show commitment to the collective effort while managing the limits of what a recession-hit budget can bear, a balancing act with no simple resolution.

What's next

A NATO summit is planned in Ankara in July 2026, and it looms as the next major checkpoint in the alliance's spending trajectory. The gathering will offer a forum to assess progress toward the 5 per cent goal and to reaffirm or recalibrate commitments, and Canada's posture there will be closely watched by allies and by Washington.

For Ottawa, the immediate task is translating the 2 per cent milestone into a credible plan for the longer climb. The budget choices that lie ahead, balancing defence against other priorities amid a technical recession, will define how seriously Canada's pledge toward 5 per cent is taken both at home and within the alliance.

Arctic security, sovereignty and the broader shape of Canada's military will feature prominently as the spending debate unfolds, while the mechanics of shipbuilding and procurement determine whether higher budgets yield real capability. These threads will shape the national conversation in the months following the Ankara summit.

Ultimately, NATO's 5 per cent target confronts Canada with a defining test of priorities. Having reached 2 per cent for the first time since the Cold War, the country must now decide how far and how fast it is willing to go, balancing alliance expectations, American pressure and the hard limits of a fragile economy.