How much is actually spent on defence?

NATO and national accounts accounting criteria (COFOG)

European countries have been committing to increasing their national defence spending. The commitments made within the framework of NATO (or North Atlantic Treaty Organisation) are widely reported in the media. The Commission's Communication urging European Union member states to activate national derogation clauses in order to cope with increased defence spending without breaching the new Stability and Growth Pact, resulting from the reform of European economic governance, also received media attention. However, we are talking about two very different concepts of defence spending.

For NATO, defence expenditure is defined as ‘payments made by a national government (excluding regional, local and municipal authorities) specifically to meet the needs of its armed forces, those of Allies or of the Alliance.’

A first point to note is that the NATO definition refers to payments, a cash concept, rather than commitments. It also covers several categories of expenditure.

NATO defence expenditure main categories:

• Personnel — Pay and benefits for active military and civilian defence staff; On top of Ministry of Defence Armed forces it might also include parts of other forces such as Ministry of Interior troops, national police forces, coast guards etc. In such cases, expenditure is included only in proportion to the forces that are trained in military tactics, are equipped as a military force, can operate under direct military authority in deployed operations, and can, realistically, be deployed outside national territory in support of a military force.
   
• Pensions — Retirement pensions to retired military and civilian employees of military departments.
   
• Operations and missions — Costs for deployed operations, missions, engagements, peacekeeping and humanitarian operations; deployment logistics; destruction and inspection of weapons, equipment and ammunition. 
   
• Equipment and stockpiles — Procurement, maintenance and sustainment of military equipment; spare parts, ammunition; stockpiling of war reserves of finished equipment and supplies for direct use by the armed forces. 
   
• Research and development — R&D related to defence, including prototype work and projects that do not reach production.
   
• Support to other forces and partners — Military and financial assistance from one Ally to another to support defence efforts; parts of non Ministry of Defence forces (e.g., coast guard, police units) counted only for the portion trained, equipped and deployable as military. Donor assistance is included in donor’s defence expenditure.
   
• Civilian-military shared services — Military share of mixed civilian military activities that can be specifically accounted for or estimated, such as airfields, meteorological services, aids to navigation, joint procurement services. Only the identifiable military component is included.
   
• NATO common infrastructure and trust funds — Net national contribution to NATO common infrastructure and eligible NATO managed trust funds. Included only to the extent of the country’s net contribution.
   
• Excluded items — War damage payments and civil defence spending; non eligible partner assistance and non approved trust fund contributions. 

In 2014, NATO Heads of State and Government had agreed to commit 2% of their national GDP to defence spending. Allies had also agreed that at least 20% of defence expenditures should be devoted to spending on major equipment, including the associated research and development.

At the 2025 NATO Summit in The Hague, member states committed to significantly increasing defence and security-related spending by 2035. They agreed to invest 5% of their Gross Domestic Product annually, with at least 3.5% dedicated to NATO-defined defence expenditures and meeting NATO Capability Targets. The remaining 1.5% will be used to support areas such as critical infrastructure protection, cybersecurity, civil preparedness, innovation, and strengthening the defence industrial base. Each Ally will submit annual plans outlining a credible and gradual path toward achieving these goals.

In national accounts, for the case of the EU, the EUROSTAT’s definition of Defence (according to the Classification of the functions of government, COFOG) includes: military defence; civil defence; foreign military aid, R&D related to defence; defence not elsewhere classified (n.e.c.) 

Comparison NATO vs COFOG definitions. Contrary to the NATO definition, COFOG is a national accounts concept and therefore consistent with the other statistical data used in economic and fiscal surveillance (notably government deficit and expenditure). A key technical difference lies the timing of the recording the expenditure on military equipment as the NATO reporting does not follow national accounts rules for the time of recording. In national accounts (and COFOG), the impact of military equipment on government expenditure and the deficit typically occurs at the time of its delivery, which marks a change in economic ownership, and not at the time of the cash payment(s). This difference is particularly relevant when large equipment orders are placed, which generally require regular advance payments to be made until the equipment is delivered. These payments count as NATO expenditure, but not as COFOG expenditure. When delivery takes place, a peak in COFOG expenditure is to be expected. 

The NATO defence spending definition is slightly broader in some respects and narrower in others than the COFOG. On one hand, contrary to COFOG, the NATO includes pensions to retired military and civilian employees of the Ministry of Defence. It might also include, under certain conditions, count expenditures related to other security forces such as Ministry of Interior troops, national police forces, coast guards, etc. On the other hand, the NATO definition excludes expenditure on civil defence, which is included in the COFOG definition.

What does the data tell us?

By comparing the most recent COFOG data available (up to 2023 for most countries) with NATO defence expenditure figures as of August 2025, we observe that, in general, NATO-reported defence spending as a share of GDP is higher than the corresponding COFOG figures.

In 2023, the largest discrepancy was observed in Poland, which reported defence spending of 3.3% of GDP under the NATO definition, compared to 2.1% under COFOG.

Since 2014, Portugal has consistently reported NATO defence expenditure levels that are, on average, 0.5 percentage points of GDP higher than those reported under COFOG. In 2023, Portugal recorded the sixth highest positive gap between NATO and COFOG figures among member countries.

This gap has widened further based on provisional data for 2024 and 2025, with NATO figures showing a more pronounced increase than those reported in national accounts (as reflected in the 2026 Draft Budget).

Table 1 Difference between NATO defence reporting and COFOG defence (in p.p. of GDP)

Sources: Eurostat (extraction on 14.10.2025) and NATO (NATO - News: Defence Expenditure of NATO Countries (2014-2025), 28-Aug.-2025).

Flexibility for defence increase in the EU

The European Commission has announced in March 2025 that EU countries will be allowed to use a special flexibility clause under the Stability and Growth Pact to accommodate increased defence spending.^[1] This flexibility will be available for a period of four years starting in 2025. During each year the clause is activated, member states can increase their defence expenditure by up to 1.5% of GDP, calculated relative to increases in defence spending since 2021, which is considered the year before the exceptional circumstances that led to the activation of the clause.

If a country activates the national escape clause under these conditions and this results in a budget deficit exceeding 3% of GDP or a deviation from the approved net expenditure path due to higher defence spending, the Commission and the Council may choose not to conclude that an excessive deficit exists.

Portugal activated the national escape clause this means that it is possible to increase the COFOG defence expenditure from the 2021 level of 0.8% of GDP to 2.3% of GDP under the activation of the national escape clause. In 2021 the NATO reported defence was 1.5% of GDP.

Annex - Detailed COFOG DEFENCE classification

Table 2 Defence expenditure, COFO and NATO definitions, % of GDP

Sources: see table 1.

^[1] EUROPEAN COMMISSION Brussels, 19.3.2025 C(2025) 2000 final, COMMUNICATION on Accommodating increased defence expenditure within the Stability and Growth Pact.

Date of last update: 03/11/2025