Ottawa on track to achieve NATO’s 5% spending target by 2035, Carney says

Prime Minister Mark Carney speaks at CANSEC in Ottawa on Wednesday. Photo by HYUNGCHEOL PARK/Postmedia

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Prime Minister Mark Carney says the federal government is on track to meet the North Atlantic Treaty Organization’s target for defence spending of five per cent gross domestic product by 2035, but turning that into sustained economic growth may be a different challenge, according to defence industry watchers.

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He said his government is “working towards” spending 3.5 per cent of gross domestic product on major defence investments. This includes a new submarine fleet and the newly announced plans to purchase Saab’s GlobalEye airborne early warning aircraft.

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The promise is part of his commitment to NATO’s Defence Investment Pledge, which aims to bring Canada’s defence spending to five per cent of annual GDP: 3.5 per cent on direct military spending and 1.5 per cent on critical defence infrastructure.

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“A strong, resilient defence industry requires fundamental rethinking of our approval and production targets,” Carney said in his keynote speech at the CANSEC security conference in Ottawa on Wednesday. “Thanks to you … we are now building again.”

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The prime minister said that rather than checking items off a pre-existing defence wish list, the government wants to ensure the $81.8 billion in spending over five years that was outlined in November’s budget has long-term benefits for the Canadian economy.

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“There’s a series of other investments that we can make that will help protect Canadians. We need to help our allies, but we can do that in a way, given that the industry is changing rapidly, that maximizes the Canadian benefit,” Carney told reporters after his speech.

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Economists have called the recent push to expand Canada’s defence sector one of the most significant financing initiatives in the country’s history, providing a “once-in-a-generation opportunity” to invest in the economy.

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Analysts from CIBC Capital Markets said in a recent note that the Defence Industrial Strategy and the Defence Investment Agency (DIA) could accelerate deployment and anchor supply chains.

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“The federal government’s unified economic resilience and national security mandate is translating into tangible structural change,” the analysts said. “The formation of the DIA addresses long-standing procurement bottlenecks by consolidating authority, enabling independent capital deployment and introducing alternative contracting models such as early down-selection and sole sourcing.”

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The analysts, however, said the investments have to extend beyond traditional forms of defence.

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“The investment requirement extends beyond defence assets into enabling infrastructure, including housing, utilities, and logistics, particularly in the North,” they said.

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David Perry, chief executive of the Canadian Global Affairs Institute, said he wants more details about the spending from Carney. He said the government has not provided projection details on how they’ll get to the five per cent GDP target, something the Parliamentary Budgetary Officer also flagged in a Feb. 5 report.