Canada May Raise Taxes to Boost Defence Spend

Canadians may face higher taxes as the federal government looks for ways to fund a major increase in defence spending. The analysis, published by the C.D. Howe Institute, highlights the financial challenges of meeting Canada’s long-term military commitments in an increasingly uncertain global environment.

The report outlines several possible measures to address the funding gap, including increasing the Goods and Services Tax (GST) by one to two percentage points, slowing the growth of non-defence government spending, or taking on additional public debt. Experts suggest that a balanced approach combining multiple strategies may be the most realistic path forward, given the scale of the required investment.

According to the findings, Canada’s annual defence budget could nearly triple from just over $50 billion in 2025–26 to approximately $150 billion by 2034–35. This sharp increase is tied to Canada’s commitment to strengthening its military capabilities and aligning with NATO defence spending targets in response to rising geopolitical tensions.

The report also emphasizes that without policy adjustments, such a surge in spending would significantly widen federal deficits. A modest GST increase alone could generate tens of billions in additional revenue, helping to offset some of the financial burden while maintaining fiscal stability.

However, economists warn that the government’s room for manoeuvre is limited. Canada is already facing structural economic challenges, including sluggish productivity growth, an aging population, and elevated levels of public debt. These factors reduce the flexibility available to policymakers when making large-scale spending decisions.

As a result, officials may be forced to make difficult trade-offs between national security priorities and domestic economic concerns. While there is broad agreement on the need to enhance defence capabilities, the path to achieving these goals will likely involve tough fiscal choices that could impact taxpayers and government programs in the years ahead.