As Prime Minister Justin Trudeau attempts to curry favour with NATO partners during the defence treaty’s 2024 Washington summit, a new report by the federal budget watchdog shows the Liberals significantly overestimated their defence spending.
On the same day that the NATO meeting began, the Parliamentary Budget Officer released an analysis showing that Canada will miss its NATO spending requirement by more than the Liberals projected in the 2024 budget.
As part of the Liberal government’s 2024 federal budget, the party pledged to increase Canada’s defence spending to 1.76% of GDP by 2030, still below NATO’s 2% threshold.
NATO member nations have agreed to allocate a minimum of 2% of their GDP to annual military expenditure and to ensure that at least 20% of this spending is dedicated to new equipment. Yet time and time again, the Liberal government has not provided a clear path to reach these targets.
Trudeau’s revised defence policy pledged $73 billion in military spending over the next 20 years with a prioritization on climate change.
Based on NATO’s data, Canada has failed to surpass 1.5% of defence expenditure as a share of GDP every year since 2014, with ebbs and flows seeing increases and decreases over the past decade.
Funding towards the Canadian Armed Forces, the Department of National Defence, and some portions of Veterans Affairs Canada contribute towards the goal.
“PBO forecasts that Canada’s military expenditures will rise from 1.29% of GDP in 2024-25 to a peak of 1.49% of GDP in 2025-26 before falling and stabilizing at 1.42% by 2029-30. This represents $39.0B in 2024-25 rising to $52.2B in 2029-30,” according to the Parliamentary Budget Office’s report.
The report said that while the 2% defence expenditure won’t be met, the 20% military expenditure requirement will be met and exceeded starting in 2025-26.
The discrepancy between the PBO’s budget forecast and the Department of National Defence comes down to two factors, according to the audit.
“First, PBO’s projection of Major Equipment Expenditures is lower than that of DND since recent experience as well as multiple PBO reports suggest a high likelihood of delays and lapsed appropriations,” reads the report. “Second, DND’s forecast uses the OECD’s outlook for nominal GDP in line with NATO’s publications on military expenditures. PBO instead uses its own outlook for nominal GDP, which is broadly similar to the Department of Finance’s.”
While the Department of National Defence projects the GDP defence expenditure to peak at 1.76% in 2029-2030, the PBO predicts a peak of 1.49% in 2025-26.
The department’s projections indicate that Canada’s military expenditures will peak at $57.8 billion in 2029-30, compared to the PBO’s projection of $52.2 billion in 2029-30.
According to NATO’s projections for 2024 GDP defence expenditure, Canada remains among the bottom five spenders of NATO’s 32 countries.
A bipartisan group of 23 United States Senators previously sent a letter to Trudeau. Urging him to uphold Canada’s commitment to spend at least 2% of GDP on defence expenditures.
NATO estimates that the United States will spend 3.38% of its GDP on defence expenditure in 2024.
The NATO summit runs from Jul. 8 to Jul. 11.
