A Canadian fighting vehicle takes part in the exercise Resolute Warrior of the NATO Multinational Brigade in the Adazi Military Base in Adazi, Latvia, on Nov. 14.GINTS IVUSKANS/AFP/Getty Images
One of Canada’s biggest business lobby groups is advising the federal government to hike defence spending even further than planned – to 3 per cent of annual economic output.
In a new report to be released Monday, the Business Council of Canada says growing pressure from the NATO military alliance, coupled with the economic benefits that could accrue from public investment in defence technologies, make it imperative for Canada to spend even more on its military.
It’s a call that incoming U.S. President Donald Trump has also made.
The Business Council is further recommending Canada spend some of this defence cash on high-risk, high-reward bets that could develop homegrown expertise in technologies from energy to artificial intelligence and aerospace.
Canada is still a laggard in meeting the North Atlantic Treaty Organization’s target of spending 2 per cent of gross domestic product on defence. Right now it spends about 1.37 per cent but Prime Minister Justin Trudeau’s government has said it has a plan to reach 2 per cent by 2032.
But even the 2 per cent target appears to no longer be sufficient amid rising threats from authoritarian countries including Russia, North Korea, China and Iran. Back in July, then-NATO secretary general Jens Stoltenberg declared that “two per cent is now the floor for our defence spending.”
U.S. president-elect Donald Trump in August warned he would be pushing NATO members to go further as part of his belief that the United States is being asked to shoulder an inordinate amount of the collective-defence burden. “To make up for shortfalls and help deter threats, I’ll insist that every NATO nation must spend at least three per cent,” Mr. Trump said during a speech at a National Guard conference in Detroit. “You have to go up to three per cent,” he said. “Two per cent is the steal of the century.”
Spending more on defence will add significantly to budget costs. Defence experts have previously said Canada needs to spend upwards of $16-billion to $17-billion more each year to reach the 2 per cent target.
In its report, Security & Prosperity: the Economic Case for a Defence Industrial Base Strategy, the Business Council says Canada needs to reach 2 per cent by the 2029-30 fiscal year. The group says the country should hit 2.5 per cent by 2034-35 and aim for 3 per cent after that.
It cautions that the U.S. could penalize Canada for falling behind.
“Senior officials from the United States have repeatedly warned that Canada’s preferential access to the U.S. export market – a market which supported the livelihoods of more than three million Canadian workers in 2022 – could be jeopardized if the government of Canada fails to move with urgency to meet its NATO commitments,” the Business Council report says.
It also says Canada should invest public money into developing technology with both military and civilian applications - called dual-use technology – that could also have economic benefits for the country far beyond defence.
The report calls for a dedicated planning, decision-making, and co-ordination unit within the Privy Council Office (PCO) under the National Security Council to direct planning and expansion of Canada’s defence industrial base.
“Canada’s military rivals are investing heavily in their armed forces, and the defence industrial bases which support them, with the goal of reshaping the international order in ways that can, and do, undermine Canada’s national and economic security,” the report says.