Canada has promised NATO total defence spending of 4% of GDP by 2030 and 5% by 2035. The Parliamentary Budget Officer’s new primer, Canada’s Defence Spending Commitments (published 6 October 2026; authors Christopher E. Penney, Madanmohan Ghosh and Albert Kho), turns that pledge into dollars. Budget 2025 says currently planned spending across all levels of government is expected to meet the 1.5% “ancillary” share. The PBO therefore treats the commitment as raising core defence spending from 2% of GDP today to 2.5% in 2030 and 3.5% in 2035.

$163.6 billion is one year’s spending in 2035-36 on the gradual path. It is not a ten-year total.
Citizen impact: In 2035-36, core defence spending on the 3.5% path would be $70.1 billion higher than if Ottawa stayed at 2% of GDP. After converting to the accrual accounting that federal budgets use, the PBO estimates that year’s deficit would be $63.7 billion larger (1.4% of GDP) and federal debt 5.7 percentage points of GDP higher. The PBO says this cost “has not yet been reflected in fiscal projections of recent Budget documents.” That means future taxes, borrowing or cuts elsewhere have not yet been laid out.

Two paths to 3.5%

The PBO sketches two cash-basis paths from 2.5% of GDP in 2030-31 to 3.5% in 2035-36:

  • Gradual: spending rises from $95.7 billion in 2030-31 to $163.6 billion in 2035-36. The largest single-year increase is about $15.2 billion.
  • Back-loaded: spending reaches only $124.1 billion by 2034-35, then needs a jump of about $39.6 billion in the final year.

The primer says: “The scenarios are illustrative and do not represent PBO projections.” The government says its fiscal framework already provisions for 4% by the end of the decade, but that reaching 5% by 2035 will need additional provisions.

Why NATO’s number and Ottawa’s deficit differ

NATO counts defence spending on a cash basis, by calendar year: it counts when payments are made. Ottawa’s budgets use accrual accounting by fiscal year, which spreads the cost of a ship or aircraft over its service life. The PBO notes that a big procurement can count toward NATO’s target “years before” its full effect on the federal deficit shows up. During a capital build-up, cash spending runs well above the accrual cost.

Can DND spend it?

The PBO’s record on DND capital spending is mixed:

  • From 2017-18 to 2023-24, actual capital spending fell $18.5 billion short of the previous defence policy’s projections.
  • More recently, spending under DND’s capital vote rose from $4.9 billion (2022-23) to $8.8 billion (2024-25), while lapsed funds fell from about $1.0 billion to $0.2 billion.
  • Budget 2025 committed $6.6 billion over five years to the Defence Industrial Strategy, of which $4.6 billion was labelled “Early Moves”. The PBO notes the government “has not publicly provided a complete reconciliation” of the $6.6 billion.
  • The Defence Investment Agency is to get $103.8 million over five years from 2026-27, then $22.3 million a year. That agency is the subject of Bill C-40.

The primer also cites the Auditor General’s 2024 finding that ISED could not show the Industrial and Technological Benefits policy was meeting its objectives.

What this piece refuses

Do not call $163.6 billion a cumulative or “by 2035” total. It is annual spending in 2035-36 on one illustrative path. Do not present either path as a PBO forecast. Do not equate the NATO cash figure with the deficit effect; the PBO puts the 2035-36 deficit increase at $63.7 billion, not $70.1 billion. Committee testimony quoted in press coverage of the primer is not used here because the Evidence was not checked.

Contested: Supporters argue that allied security and domestic industry justify the cost and that the spending supports jobs. Fiscal hawks point to the unbudgeted deficit gap, and sceptics to DND’s history of under-spending. The PBO takes no side. It says the extra spending is not yet reflected in recent budget projections, and it is still modelling regional and industry effects.

Bottom line

Verified as of 8 October 2026: on the PBO’s gradual path, meeting the 3.5% core target means $163.6 billion in defence spending in 2035-36, $70.1 billion above a 2% baseline. That would raise the deficit by $63.7 billion that year and debt by 5.7 points of GDP. None of it is in budget projections yet. Watch the next federal budget update for how the 2030–35 increase is financed.