Ottawa’s budget watchdog says feds need to spend $164 billion by 2035 to reach NATO target

Parliamentary Budget Officer Annette Ryan attends a committee meeting on Parliament Hill in Ottawa June 16, 2026. Photo by Blair Gable /Postmedia

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OTTAWA – A new report published by the Parliamentary Budget Office said the federal government will have to spend $163.6 billion in cash on core defence spending by 2035 to meet its spending pledge under the North Atlantic Treaty Organization (NATO).

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The report published on Tuesday said while the Department of National Defence has increased its capital expenditures in recent years, Canada’s NATO commitments will require defence spending to increase further and remain at “substantially higher levels.”

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The Liberal government has committed to spending five per cent of its GDP towards defence spending by 2035, a new spending target set by NATO allies last year.

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The breakdown includes 3.5 per cent allocated for core defence spending and 1.5 per cent for ancillary spending, which includes investments in defence infrastructure. Canada only recently achieved its two per-cent spending commitment, first promised in 2014.

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In May, Prime Minister Mark Carney said Canada will reach four per cent by 2030-31, which would mean core defence spending would rise to 2.5 per cent.

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The PBO report estimates that it will require $95.7 billion by 2030 for Carney’s pledge to turn into a reality.

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Parliamentary Budget Officer Annette Ryan said the federal government’s plan to hit its five per-cent NATO spending target seems to still be “in formation,” noting that key details are missing.

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“I think it’s fair to say that the government’s plans in the next five years or over the next 10 years are still in formation,” Ryan told a House of Commons committee this week.

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“I think that it is also fair to say that there remain numerous… kind of elements of that plan to be elaborated and set forth over this five-year period, let alone the 10-year period,” she added.

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The federal government has been criticized for not showing its work on its defence spending plans. Budget 2025 and the spring economic update from 2026 lacked any breakdown of its defence spending projections.

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Finance Minister François-Philippe Champagne told reporters more details will come on his government’s defence spending plans, although he provided no timeline.

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Ryan and her colleagues confirmed that they have received a remit from the Department of National Defence, which provides a breakdown of the department’s spending, which has been used for the PBO’s latest projections.

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The PBO also noted that NATO measures spending pledges on a cash basis and the Canadian government uses accrual accounting for its financial statements and fiscal indicators.

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“More recent analysis by the (PBO) indicates that the difference between the cash and the accrual impacts of increased defence spending could be upwards of 30 percent per year during this period of rapid investment,” said Ryan. “In other words, borrowing requirements for these measures could be 30 percent higher than recorded in relevant deficits.”