The Canadian government is charting one of the most expansive defence budgets in decades at a time when federal finances are under pressure from rising deficits and a sluggish economy. Ottawa has committed to spending at least two per cent of the nation’s gross domestic product on NATO-defined military expenditure this fiscal year, a threshold never before met by Canada and one that has required billions in additional defence outlays. Analysts warn the push to meet that benchmark will lift the overall budget deficit significantly beyond projections that pre-dated the defence increase, compounding the long-standing fiscal gap Ottawa must manage.

Prime Minister Mark Carney’s government created the shift by boosting defence spending to roughly $63 billion this year, part of a multi-year sequence of increases. This has included higher personnel costs, new equipment procurement and expanded operations overseas as Canada positions itself as a more resilient NATO partner. Meeting the two per cent target ahead of schedule was framed as necessary in the face of mounting global threats and a desire to reduce reliance on United States military support.

The scale of these defence commitments stands in sharp contrast to the federal budget’s health. Recent independent forecasts suggest deficits could exceed $90 billion for the current fiscal year and average close to $80 billion over the next four years because of the spending strategy and other government initiatives. These figures dwarf assumed levels from before the defence escalation, raising questions about Ottawa’s longer-term fiscal trajectory. Critics argue the government has not provided detailed plans on how it will sustain elevated defence outlays without narrower deficits or deeper structural reforms.

Canada’s fiscal planners are now confronting the trade-offs between national security spending and conventional budget priorities. The drive to conform with NATO targets has brought defence to the fore of national policy debates, but it has also exposed underlying strain in public finances that economists say cannot be dismissed.