By Daniel Béland

February 13, 2025

The most striking irony in U.S. Defence Secretary Pete Hegseth’s first appearance at NATO in Brussels on Wednesday was his reiteration of Donald Trump’s insistence on an increase to 5% of GDP in defence spending for Alliance members at a time when Trump himself represents the greatest security threat to Canada.

In terms of defence spending, Canada lags behind most of our NATO allies, and our current spending remains significantly below the NATO target of 2% of GDP. In the context of the illegal Russian invasion of Ukraine and its enduring quagmire, and, more recently, President Trump’s threats against Canada’s economy and sovereignty, the internal calls for Canada to promptly increase its defence spending are also increasingly loud and clear.

Predictably, this issue has become a significant theme of the Liberal leadership race. For candidates, advocating for swift action in that regard is important, especially as Minister of National Defence Bill Blair announced an acceleration in Canada’s defence spending timeline so that we can meet the 2% NATO target by 2027 rather than by 2032, as initially planned. Simultaneously, some Liberal leadership hopefuls are also using defence spending as a way to distinguish themselves from clear front-runner Mark Carney, who early in the race only pledged to reach the two percent target by 2030. In contrast, both Chrystia Freeland and Karina Gould made it clear that they support attaining this target by 2027.

Canada is the second-largest country in the world by land mass, and, to protect our people, vast territory, and plentiful natural resources, including and especially in the Arctic, the current NATO target, which was adopted at the Wales Summit in 2014, appears too modest for the dramatically uncertain international environment we live in. In fact, it is likely that, as early as June, NATO adopts a new spending target of 3% of GDP.

In the context of a rise in Canadian patriotism triggered by Trump’s tariff threats and his talk of making Canada the 51ststate, some observers are even calling for a major expansion of the Canadian military to protect our country against the Trump administration’s apparent territorial ambitions. In the Calgary Herald, for example, columnist Don Braid calls for such a rapid expansion to protect the country against Trump and send a clear message to him about Canada’s territorial integrity: “Double and triple the size of our military so quickly that even Trump might notice something’s going on. Strive for peace, of course, but make it clear that this country is not for sale — or conquest.”

Adopting a much more conciliatory tone toward Tump in The National Post, military men Rick Hillier, Brice Scheschuk, and Kevin Reed explain how Canada should increase defence spending to send a clear signal to his administration that our country is now serious about national defence. They argue that, through measures such as Canada’s partnership “to the proposed blueprint of a Defence, Security and Resilience Bank,” our political leaders could “boast to Trump, his cabinet and Congress, as well as to our NATO allies, that we are committed to spending 2% of our GDP on defence in 2026, 2.5% in 2027 and 3% in 2028.”

Clear fiscal and political dilemmas are likely to emerge in Canada if we decide to imitate Denmark and other NATO allies who have recently decided to spend much more on defence moving forward.

For them, boosting defence spending now is urgent because “With the Trump administration, you are either with them or against them. There is no half way. We must be with them. And as the world becomes a more dangerous place, trade conditions with our allies must have security conditions. They are 100 per cent linked.” In other words, to avoid a trade war with the United States, Canada must step in and adopt an aggressive defence spending plan that goes well beyond the current NATO target.

Looking at recent data, it is clear that, in the aftermath of the war in Ukraine, some of our NATO allies like Poland, the Baltic countries but also Denmark and Finland have already dramatically boosted their defence spending over the last three years. Yet, budgetary policy is about trade-offs and people should be aware of the fact that, considering the attachment of Canadians to medicare and their other health and social programs, simply cutting social policy expenditure to finance an increase in defence spending is not a politically viable or even a morally acceptable option.

This is why we need to pay attention to current fiscal debates in countries like Denmark, which points to the need to understand the potential tension between existing social policy commitments and higher defence spending. A recent conversation with Klaus Petersen, a Danish historian who has published extensively about the relationship between warfare and welfare, leads me to believe that clear fiscal and political dilemmas are likely to emerge in Canada if we decide to imitate Denmark and other NATO allies who have recently decided to spend much more on defence moving forward.

In that context, in addition to improving economic productivity and facilitating internal trade to boost prosperity and federal revenues, fiscal imagination might be needed to pay for our new, higher defence bills. Certainly, promising massive tax cuts is highly problematic at this point, because most Canadians are unlikely to like the prospect of choosing between “guns” (higher defence spending) and “butter” (preserving our social programs).

More generally, in assessing our capacity to pay for both a stronger military and a sustainable welfare state, new sources of tax revenues could be discussed. In case of a severe national security crisis requiring urgent new spending, for example, we could consider the creation of a temporary “Canada Defence Contribution” (CDC), a dedicated tax serving the sole purpose of paying for additional defence spending. How this dedicated tax would work and who would pay it (all taxpayers or only higher income people) are open questions but the CDC would need to have a sunset clause and operate like an emergency tax such as the one currently debated in Denmark to pay for the country’s additional defence spending.

Fiscal patriotism has been a key phenomenon for a long time all over the world, including here in Canada, during both world wars. Hopefully something like the CDC, a temporary fiscal tool of last resort, will never become a necessity in our country. Yet, here just as in Denmark, it is absolutely imperative to start thinking seriously about the fiscal challenges stemming from the forthcoming, unavoidable increase in defence spending.

The author thanks Klaus Petersen for his suggestions.

Daniel Béland is professor of political science and director (on leave) of the McGill Institute for the Study of Canada at McGill University.