Canada's defence spending will hit 1.8 percent of GDP in the 2025-2026 fiscal year, nearly $5 billion short of NATO's 2 percent target. The Department of National Defence misses this mark even as pressure mounts from allies. The large majority of NATO's 31 members now meet the spending target, and President Donald Trump has pushed for raising it even further to 5 percent of GDP. Canada stands as an outlier at a time when most allies have stepped up their contributions.

Research from the Fraser Institute shows that hitting the 2 percent target by 2027-2028 would require Canada to spend $68.8 billion on defence that year—an additional $22.7 billion in borrowing. The dismal state of Canada's finances makes this accelerated timeline very costly to Canadians. Federal debt interest payments are expected to equal all Goods and Services Tax revenues in 2024-2025, largely due to past borrowing. The numbers reveal a fundamental problem: Canada can't afford to meet its promises without piling on debt it can barely service.

The cost of borrowing billions more hits Canadians in two ways. In the near term, it means higher debt interest payments—government must pay interest on its debt, same as a family with a mortgage, and rising interest costs leave less money available for programs and services. Long term, the borrowed money burdens future generations of taxpayers who will likely face higher taxes to pay for today's spending. Instead of borrowing, the Fraser Institute argues Ottawa should identify and cut wasteful spending and use those savings for national defence—smaller and smarter government spending could help get Canada out of this lose-lose situation. But that requires tough choices about which programs to scale back.

Canada faces a lose-lose situation when it comes to meeting NATO's 2 percent target. Either borrow billions more and weaken an already shaky fiscal position, or disappoint allies during increasingly dangerous times. The 1.8 percent figure for 2025-2026 shows marginal progress but doesn't close the gap fast enough. With allies watching and threats mounting, Canada needs to decide whether defence is a true priority—and if so, what it's willing to sacrifice to fund it properly.