Canadians could be facing higher taxes in the coming years as the federal government weighs how to finance a major increase in defence spending, according to a new report.
The analysis, released by the C.D. Howe Institute, suggests Ottawa may need to raise the GST by one to two percentage points while also slowing growth in non-defence spending to meet its military commitments.
The report comes as the government, led by Prime Minister Mark Carney, aims to significantly boost defence funding in line with NATO expectations.
According to the projections, Canada’s defence budget could triple — rising from just over $60 billion in 2025–26 to nearly $150 billion by 2034–35. At that level, military spending would rival the scale of major federal transfers to provinces.
Researchers warn that meeting a target of five per cent of GDP for defence spending by 2035 will require “hard fiscal choices,” including a mix of tax increases, spending restraint, or additional borrowing.
A two-point increase in the GST alone could generate an estimated $25 billion in federal revenue in the first year, offering one potential path to offset rising costs.
The report also highlights broader economic challenges — including weak productivity, slow economic growth, an aging population, and already high federal debt — all of which limit Ottawa’s flexibility.
While there is growing political consensus that Canada must strengthen its military amid global instability, the institute cautions that achieving these goals will come with difficult trade-offs.
Experts suggest a balanced approach — combining moderate tax increases with tighter control on non-defence spending — may be the most realistic way forward while maintaining long-term fiscal sustainability.
