As we enter the holiday period, “peace” is very much top of mind. The Finnish celebrate “Christmas Peace” each year to formally announce the beginning of the season. Dating from the 13th century, the tradition encourages people to be respectful and kind: harsher penalties were once imposed on criminals for offences during the Christmas Peace. It is too bad that only one part of the year is used to remind us of the importance of peace. It should be something we pray for all year round.

Since the end of the Second World War and the collapse of the Soviet Union in 1991, the world has been enjoying a “peace dividend” — a shift in resources from national defence to peaceful activities. Putting it simply, countries have been able to put fewer resources into producing “guns” and more into “butter.”

Wars did not disappear entirely, of course. There was Korea in the 1950s, Vietnam in the 1960s and seemingly never-ending confrontations in the Middle East, Asia and Africa (Sudan being just one of the latest place to be devastated). Despite these conflicts, most countries have been able to reduce their defence commitments since World War II.

As reported by the Stockholm International Peace Research Institute, global military expenditure was US$1.63 trillion in 1990 (all values in 2022 dollars). Real military spending then dropped to US$1.14 trillion in 1998, its lowest recent value. But by 2019 it had doubled — to US$2.073 trillion. Yet although real spending rose for two decades following 1998, military expenditure as share of world GDP dropped from 3.3 per cent in 1990 to 2.0 per cent in 2019.  Up to the pandemic year, at least, the world had continued to enjoy its peace dividend.

But with the Ukraine-Russia war in 2022, new hostilities in the Middle East and military buildups in both western and eastern blocs, the peace dividend is now over. In the past three years, real defence spending has risen by 15 per cent to US$2.394 trillion in 2023, more than 2.2 per cent of global GDP.

The United States is far and away the biggest spender on defence, accounting for two-fifths of the global total. After his election in 2016, U.S. President Donald Trump, argued America was carrying an unfair share of the defence burden and pushed NATO members to reach defence spending of two per cent of GDP. Today, 23 of the 32 NATO countries have reached that target, compared to only three in 2014.

As of 2024, NATO reports, U.S. defence spending is 3.38 per cent of GDP. Only two NATO countries spend more than that: Poland (4.12 per cent) and Estonia (3.43 per cent), though both were below the two per cent target in 2014. History gives both countries much reason to fear, especially with Russia’s annexation of Ukrainian territory starting in 2014.

Way down the NATO list — fifth from the bottom — is Canada, with defence spending of 1.37 per cent of GDP. At least that’s more than 2014’s 0.99 per cent of GDP. For several decades, believing the U.S. would come to Canada’s defence, Canadian politicians have preferred to spend money on social programs. Our peace dividend has come in part from being a free rider.

While the Trudeau government has promised to increase military spending to reach two per cent of GDP by 2032, that target may soon be out of date.  European NATO members are talking about raising it to three per cent, though that will obviously stress their budgets.

With Canada already behind the eight ball, a three per cent target would have a profound impact on our federal budget. Applying it to 2024, defence spending would have to more than double, from $41 billion to $90 billion. Without new taxes, the result would be a federal deficit of $95 billion this fiscal year (if, that is, you can believe this week’s projection of a $46-billion deficit in the fall economic statement).

The new three per cent target is still up in the air and won’t be agreed on until next year. European foreign affairs ministers are bargaining over details, including interim targets. A short-term target of 2.5 per cent is being proposed, with the full three per cent by 2030. Our peace dividend is obviously coming to an end.

Whatever happens, Canada’s free riding days are over. If more tax dollars have to be spent on “guns”, there will be fewer left for “butter.” On the other hand, some of our existing butter has been too fat-rich, with a burgeoning federal civil service and poor government productivity. Trimming fat can make room for more defence spending.

Financial Post

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