Canada crossed the politically significant threshold of meeting NATO’s defence spending benchmark of two per cent of gross domestic product, according to the Western alliance’s annual secretary general’s report and compilation of statistics released on Thursday.

It is the first time since the late 1980s — toward the end of the Cold War — that the country has met the target, which has in recent years taken on enormous political and symbolic significance. 

The Liberal government achieved the goal with an injection of an additional $9.3 billion into the Department of National Defence’s budget last June — bringing the overall defence expenditures to just over $61 billion.

Despite the huge expenditure, the NATO report showed that Canada had crossed the line by the skin of its teeth, registering an estimated two per cent of GDP. It was still in the bottom one-third of the alliance in terms of defence spending, along with Belgium, Spain, Albania and Portugal.

The top spenders in terms of percentage of GDP included Poland (4.3), Lithuania (4.0), Latvia (3.74) Estonia (3.42) and Denmark (3.34). The United States ranked seventh overall (3.19).

Hitting the two per cent benchmark by the end of the fiscal year, on March 31, was a promise Prime Minister Mark Carney made in the face of long-standing pressure from allies, including the United States. 

The achievement represents a dramatic turnaround from not quite two years ago when former prime minister Justin Trudeau referred to the two per cent goal as a “crass mathematical calculation,” one that he had reportedly told allies Canada would never meet.  

The country arrives at the threshold months after NATO leaders vowed to increase defence spending even higher over the next decade to five per cent of GDP (3.5 per cent on direct military spending and 1.5 on defence infrastructure).

Getting to the two per cent goal was never assured because, over many years, the Defence Department has not had the institutional capacity to spend all of its appropriation. It has often had to return unspent billions of dollars to the federal treasury.

The benchmark was partly achieved by an internal reorganization of the federal government, which has seen some agencies, such as the Canadian Coast Guard, moved under the auspices of the Defence Department and therefore counted toward the NATO target. It was also achieved through a substantial pay raise for members of the military and by pouring money into base infrastructure and overhaul.

While the prime minister deserves credit for making defence spending a priority, defence analyst Dave Perry says there’s been an emerging agreement across the political spectrum that the investment were necessary.

“It hasn’t been just Mr. Carney,” said Perry, president of the Canadian Global Affairs Institute. “In the last federal election every party committed to spending two per cent of GDP on defence. It is a completely different political consensus on defence than the one that we had had for the previous decade where they were all in agreement that didn’t need to hit.”

Perry said that changed a year ago.

Carney is in Halifax Thursday and expected to have more to say about the achievement and face questions on the details of the spending.

Defence spending announcements

Over the last month, the Liberal government has announced more than $42 billion in defence-related spending — much of it planned for future years and programs, such as Arctic infrastructure. 

Among the more immediate spending announcements made last week was the first phase purchasing new rifles for the army. It will cost taxpayers $307 million, but the Defence Department, the Defence Investment Agency and the country’s procurement services department all refused to release detailed breakdown of the elements that make up the overall project budget.

The two per cent target has been a political powderkeg in recent years, with U.S. President Donald Trump at one point in his 2024 re-election bid pledging not to protect allies who failed to meet the goal.

The threshold had its political origins in November 2002 as part of the Prague Capabilities Commitment (PCC), so named for the city where NATO leaders agreed to set down a budget benchmark for member states.

The administration of then-U.S. president George W. Bush tried to make the target mandatory, but failed, according to a research paper written for Germany’s federal security academy in 2019.

Consequently, the two per cent target was, throughout most of its existence, more of a suggestion than an actual target. Many countries, Canada included, largely ignored it until Russia annexed Crimea in 2014.

Additionally, NATO hasn’t always tracked member nations’ defence spending as a percentage of their economies. The practice only began in 1974, according to data in the alliance archives.

At that time, Canada’s military spending compared to its economic output was at 2.7 per cent of GDP. It declined during the late 1970s as detente took hold — only to reverse in the 1980s as tensions with the former Soviet Union peaked.