2 days ago
As it hosts G7, Canada under pressure to further boost military spending by tens of billions
Canada is facing hard budget choices as it plays host to the Group of Seven summit starting Sunday and prepares for a looming NATO meeting where Western allies will be asked to commit to further defence spending hikes in the face of rising threats from Russia and other rivals.
Defence and security will be an underlying theme at the G7 forum in Kananaskis, Alta., where all but one of the member countries also belong to the NATO military alliance, which is poised to cement a new defence spending pact at The Hague one week later.
The G7 includes Canada, the United States, Japan, Britain, Germany, France and Italy.
A bigger NATO military spending target will place steep new demands on the federal treasury at a time when Canada's economy is hurting from trade wars with the United States and China, the federal budget deficit topped $43-billion last year and after a significant injection of defence money this month.
It was only June 10 that Prime Minister Mark Carney unveiled $9.3-billion in new funding for Canada's military and announced the country's defence spending would hit 2 per cent of Gross Domestic Product. That meets the existing North Atlantic Treaty Organization expenditure target and represents a level of spending not seen in Canada since the Cold War.
NATO Secretary-General Mark Rutte has already announced that he expects member countries will agree to boost defence spending as a percentage of their annual economic output to 3.5 per cent. Plus, it's anticipated that NATO countries in late June will also agree to a separate but related target: a further 1.5 per cent of GDP for investments in security-related infrastructure and resources − for a total of 5 per cent.
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Hiking Canada's defence spending to 3.5 per cent of GDP would require Canada to spend an additional $45-billion to $50-billion each year on its military − above and beyond the investments that Mr. Carney announced this week, said David Perry, president of the Canadian Global Affairs Institute.
At the same time, Mr. Carney's Liberals promised $20-billion over four years for nation-building projects including trade corridors, infrastructure and investments in the Arctic plus another $11.8-billion for housing through Build Canada Homes, a new agency for affordable housing.
Recent polling by Nanos Research found 65.2-per-cent support among Canadians for raising spending to the current NATO target of 2 per cent but only lukewarm backing for a further boost to 5 per cent. Only 17.3 per cent of respondents embraced the higher benchmark. The poll of 1,120 Canadians was conducted June 1 to June 3 and is considered accurate to within 2.9 percentage points 19 times out of 20.
Pollster Nik Nanos said public support for more military spending falls off beyond the current NATO target. 'Once we get beyond 2 per cent, politically, it's going to be much more difficult, because we might not be funding social programs or health care or other important priorities,' he said.
'And you know what the research suggests, at least now, is that things like jobs and the economy and health care are rising in importance.'
He said Mr. Carney will have to persuade Canadians that further military spending will create more prosperity and jobs. He said the fact that U.S. President Donald Trump has linked increased defence spending and the Canada-U.S. trade relationship has made it easier to rationalize military budget increases in order to protect market access to the United States.
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Don Drummond, a former senior Finance Department official, said the federal government will have no choice but to raise taxes in the years ahead.
He said Canada's finances are in a structural deficit that can't be solved by a growing economy and it's unfair to pass bigger debt loads onto future generations.
'The pot's not big enough: They only have two choices: cut transfers to provinces or raise taxes,' Mr. Drummond said of Ottawa. Personal and corporate income taxes are already too high, in his opinion, which only leaves the goods and services tax.
Canada hasn't spent 3.5 per cent of its annual economic output on the military since the early 1960s.
Few NATO countries have already surpassed 3.5 per cent. Among G7 countries, the United States was expected to hit 3.19 per cent in 2024, according to estimates in a recent NATO report. Britain was expected to reach 2.33 per cent, Germany, 2.10 per cent, France, 2.03 per cent and Italy 1.5 per cent. Japan, which embraced pacifism 80 years ago, has significantly hiked military spending in recent years and is on track to reach 2 per cent by 2027-2030.
Former parliamentary budget officer Kevin Page said Canada could make defence spending a priority if it chooses. He noted that the Trudeau government made Indigenous people a priority and raised federal expenditures in this area by more than $50-billion annually over a 10-year period to more than $60-billion in 2023-24
He said he expects Canada to be on track to run a deficit of about $60-billion this fiscal year, depending on the fall federal budget.
Mr. Page, now president of the University of Ottawa's Institute of Fiscal Studies and Democracy, said Canada has the fiscal margin of manoeuvre to keep running significant deficits given it's financially in better shape than some peer countries.
Mr. Carney may be able to free up more financial capacity: the Liberal Party promised in the recent election campaign that it would attempt to save $28-billion over three years in spending cuts, including a cap on the size of the public service.
