A key portion of NATO members’ new pledge to spend at least five per cent of their GDP on defence includes up to 1.5 per cent committed to infrastructure and other defence-related investments — and it’s broadly defined.
Prime Minister Mark Carney said Wednesday after endorsing the spending plan at The Hague during the annual NATO leaders’ summit that critical minerals projects and other areas where Canada is already spending money could help reach that 1.5 per cent.
“We’re going to do a more proper accounting of that,” he said. “We have to show that, and we have to be deliberate and strategic about it.”
Defence and economic policy experts agree that the NATO agreement is broad enough that it affords allies a lot of wiggle room to justify certain projects as being defence-related.
Yet they acknowledge governments will have to show their work.
“We’re still going to have to be able to show that if we’re investing in a bridge, it’s because that bridge will, as an example, help get defence supplies down to the Port of Halifax and potentially get them onto a Royal Canadian Navy ship or submarine,” said David Perry, president of the Canadian Global Affairs Institute.
“I think that there’s a lot more latitude to have different things be included there, but I have a difficult time thinking that it’s simply just going to be a blank cheque.”
The official NATO leaders’ declaration says up to 1.5 per cent of GDP should go toward broadly defined initiatives to “protect our critical infrastructure, defend our networks, ensure our civil preparedness and resilience, unleash innovation, and strengthen our defence industrial base.”
A senior Canadian government official who spoke to reporters on background at the NATO summit on Wednesday said it could include projects with dual commercial and military functions, such as roads.
Perry pointed out that Canada may have a harder time justifying that than other allies.
Germany’s Autobahn, for example, would be the primary way to facilitate moving troops and equipment east to defend against a future Russian attack, so improvements like fortified bridges and road repairs could count as defence investments.
The same principle could be applied to the U.S. interstate highway system, which was originally built during the Cold War in part to improve national defence, including for military transport and evacuation routes.
By contrast, the more civilian-minded Trans-Canada Highway “is a bit of a different dynamic,” Perry said, “with a lot more grey area.”
“I think in a Canadian context, I don’t think every road, every port facility, every bridge is somehow going to be eligible,” he said.
“If we’re making investments in highways, it should be highways to be able to access different parts of the North, as an example.”
What kinds of projects could count?
The government official said Ottawa will try to make the case that projects like upgrades to rail infrastructure support national or economic security.
The NATO pledge could also cover major projects such as the Arctic ports Carney wants to build using the fast-track powers in Bill C-5, which became law on Thursday.
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Ontario Premier Doug Ford has pushed for development of the Ring of Fire, home to many critical minerals that are used in defence and auto production, to be at the top of a future list of projects approved under that legislation.
In recent days, Carney has repeatedly pointed to critical mineral extraction, as well as domestic supply chains and export to allies, as a potential key contributor to its NATO commitment and his goals for the Canadian economy.
“Canada has one of the biggest and most varied deposits of critical minerals, and we’re going to develop those,” Carney told CNN in an interview that aired Tuesday ahead of the NATO summit.
“Some of the spending for that counts towards that five per cent. In fact, a lot of it will happen towards that five per cent because of infrastructure spending, ports and railroads and other ways to get these minerals.”
Money already being spent on critical minerals projects could feasibly count toward the NATO pledge, experts agree.
Last year, for example, the federal and British Columbia governments announced a joint funding agreement of $195 million to upgrade highway infrastructure in B.C.’s northwest to support critical minerals development in the region.
Carney is looking to ramp up Canada’s critical minerals projects even further by underscoring the importance to defence.
Both NATO and the G7 summits in Canada this year have put a particular focus on building critical minerals supply chains between allies in a bid to move away from reliance on China, which currently supplies a majority of minerals used in batteries, magnets and semiconductor chips.
How much money are we talking?
Kevin Page, the former parliamentary budget officer and president of the Institute of Fiscal Studies and Democracy at the University of Ottawa, told Global News that building the necessary infrastructure for the Ring of Fire alone — including road and rail networks to move those minerals — will cost “billions and billions of dollars.”
“We don’t have that supply chain right now,” he said. “We don’t even have a manufacturing base, say, for those rare earth magnet (minerals). So a lot of this is going to need to get rolled out.”
It will also take time. Even under the major projects legislation, approvals will take up to two years under a future major projects office before companies can begin building.
In the meantime, Page said Carney is seeking to express confidence to future investors and private industry to overcome the uncertainty in the global economy — much of it due to U.S. tariffs.
“He’s going make the strategic case that in the current context — all this global uncertainty with respect to trade tariffs, the current weakness in the Canadian economy, the fact that we are operating well below potential — that there is an opportunity consistent with Canada’s fiscal position to increase defence spending over the next next couple of years, even if it is deficit finance, in a way that would boost growth,” he said.
Those major infrastructure projects Carney wants to build, he noted, will also need seed funding from the government, putting a further strain on finances.
“They’ll have to deficit finance some of it in the next few years, they’re going to have to find reallocations from spending,” he said.
“If we were to wind the clock back to 2015 and we had the same security threats, the same kind of meetings at NATO, the same commitments from our prime minister, would we have an enriched child benefit? Would we have a pharmacare program? Would we have a dental care program? Would we have a child-care program? I would say no. I think because those are the opportunity costs of making this kind of commitment.”
Carney did note that towards the end of the decade, Canadians would likely need to have conversations around “trade-offs” for continued high defence spending.
The parliamentary budget officer said this month that Carney’s previously announced $9-billion defence investment to get Canada to two per cent of GDP will increase the deficit to between $60 billion and $70 billion.
That’s up from the PBO’s pre-election estimates of a $42-billion deficit as well as promises by Carney in the Liberal platform.
Page said a deficit between one and two per cent is not out of the ordinary for a weak economy such as Canada’s right now, especially when compared with the higher debt loads in the United States and other OECD economies.
But he added that the devil will be in the details on how Carney and the Liberals plan to get out of debt in the years ahead — details that can hopefully be found in the promised fall federal budget.
“From a planning perspective, it’s going to be a difficult, challenging, busy summer,” he said. “I don’t see (Department of Finance staff) taking any holidays.”
— with files from Global’s Nathaniel Dove and Mackenzie Gray
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