Publication date: September 01, 2025
During the 38th NATO Summit in The Hague in June 2025, the importance, strength, and durability of the North Atlantic Alliance were confirmed in a short declaration consisting of only five short points, including the unwavering validity of Article 5 of the North Atlantic Treaty (Washington Treaty) of April 4, 1949.
A new defense spending target for allies was established, amounting to 5% of GDP for each country, which should be achieved by 2035. The difficulty of meeting these requirements is demonstrated by the fact that in 2024[1] 9 member states did not meet the previous minimum spending target[2], and additionally, another 10 countries exceeded the threshold in question only slightly or spent exactly 2% of GDP on defense.
Data on the priority given to defense spending by the alliance member states, as well as the common goals set in this regard, show a correlation with the territorial location of the states, i.e. the most funds for defense are spent by the so-called NATO’s eastern flank, and least of all, countries significantly distant from Russia, such as Spain. It is therefore no coincidence that the Prime Minister of this country, Pedro Sánchez, has announced a dissenting opinion regarding such a significant financial obligation. He announced that the 5% GDP defense spending threshold is impossible for Spain to meet, among other reasons, because it would threaten the welfare state model, and that Spain can meet its alliance commitments by spending 2.1% of GDP[3].
It is worth mentioning how defense spending at the 5% GDP level should be understood. Primarily, within this goal, expenditures are divided into strictly defense expenditures, which are to amount to at least 3.5% of GDP, and another 1.5% of GDP is for other defense-related purposes, including investments in infrastructure and the protection of critical infrastructure, expansion of the arms industry, and cybersecurity. Each state will be required to submit plans outlining a path to achieving the threshold. Halfway through the deadline, i.e., in 2029, the plans will be reviewed and assessed, along with the international situation, to assess whether the arrangements made in this regard are still valid.
The commitment outlined in the Hague Summit Declaration is based on Article 3 of the Washington Treaty, which states that: “In order more effectively to achieve the objectives of this Treaty, the Parties, separately and jointly, by means of continuous and effective self-help and mutual assistance, will maintain and develop their individual and collective capacity to resist armed attack.”
Security or prosperity?
Unlike Spain, which will spend a mere 1.29% of GDP in 2024, Poland is a leader in defense spending[4]. Although such high military spending necessarily entails significant constraints on fiscal policy, as the Spanish Prime Minister rightly pointed out, and as evidenced by, for example, the deficit projected in the 2025 budget bill, which is expected to reach nearly PLN 300 billion by the end of the year, it is difficult to ignore the consensus among the Polish political class that spending on military equipment is necessary. This stems from the identification of the Russian Federation as the main and existential enemy, threatening the order and security of Europe, especially its eastern part. The dilemma presented in the question may seem real at first glance, but it is not. Such high spending would undoubtedly be socially unpopular, as can already be observed in public opinion polls[5]. For Poland, as for the Baltic states, investment in the defense sector is a matter of “to be or not to be.”
We spend a lot, but how much and on what?
Poland’s defense spending stems primarily from two bases and sources. The first is the Budget Act for 2025 of 9 January 2025 (Journal of Laws, item 63), specifically Part 29 of Annex No. 2 thereto, relating to the “National Defense” category. The second is the Armed Forces Support Fund, established pursuant to Article 41 of the Act of 11 March 2022 on the Defense of the Homeland (consolidated text: Journal of Laws of 2025, item 825). The Armed Forces Support Fund exists alongside the budget, which, on the one hand, limits parliamentary oversight of how funds within the fund are spent and reduces the transparency of these expenditures, while at the same time significantly streamlining and accelerating, for example, arms purchases. Defense spending in 2025 was budgeted at a maximum of PLN 124.302 billion under the Budget Act (Part 29 and funds scattered throughout other parts of the Act, but falling under Section 752 – National Defense). In turn, the financial plan issued by Bank Gospodarstwa Krajowego forecasts revenues of PLN 76.267 billion for 2025. This would total approximately PLN 200 billion, but this amount must be reduced by PLN 14 billion, as the source of this amount is state budget funds transferred by the Minister of National Defense. The majority of the Armed Forces Support Fund’s funds are to come from debt financing.
The largest portion of the budgetary expenditures is so-called capital expenditures. The amount budgeted in this segment for 2025 was PLN 51.531 billion. These funds are earmarked for the implementation of investments and capital purchases by the Ministry of National Defense, primarily to implement the so-called Central Material Plans, which include the Technical Modernization Plan (TMP), the Material Purchase Plan (PZŚM), the Construction Investment Plan (PIB), and the NATO Security Investment Programme (NSIP).
Current expenditures constitute the second largest expenditure group (PLN 48.021 billion). These funds are allocated to personnel expenses, i.e., salaries of soldiers and officers, salaries of civilian employees of the Ministry of National Defense, purchases of materials and equipment, renovation services, equipment modifications under the TMP, energy purchases, etc. In 2025, we will spend slightly over PLN 18 billion from the state budget on benefits for individuals (including pensions and retirement benefits), and nearly PLN 6 billion on grants and subsidies – primarily for the Military Property Agency, but also for military universities, museums, and defense industry companies. The Armed Forces Support Fund, in turn, will primarily spend its funds on achieving the goals defined in the Armed Forces Development Program, namely the purchase of military equipment. A staggering PLN 65.42 billion of the Fund’s total expenditures, projected at PLN 76.260 billion, has been allocated for this purpose.
The exact amount Poland will spend of the amounts indicated above is uncertain, as it depends on several factors. Among them, it depends on whether all planned implementation agreements for the supply of military equipment can be signed, but also on whether it can successfully borrow to finance the Fund, as nearly 80% of revenues in 2025 are expected to come from debt financing. In 2024, a total of nearly PLN 160 billion is planned for defense, which would represent approximately 4.2% of GDP, but ultimately, over PLN 20 billion less (3.8% of GDP) was spent. The model of extra-budgetary financing for the Armed Forces Support Fund, on the one hand, and, in parallel, other defense expenditures outside the Fund but within the budget, is puzzling. This is somewhat reminiscent of the operation of extra-budgetary so-called COVID funds, intended to support the economy in the wake of the pandemic. This practice undoubtedly simplifies and accelerates procedures and often allows for the effective and efficient implementation of established goals, but it introduces a very large transparency deficit. The current Ministry of Finance authorities have decided to include some extra-budgetary funds (specifically, COVID funds, specifically the debt resulting from the operation of these funds) in the budget, but they have not decided to do the same for the Armed Forces Support Fund. The process for creating the FWSZ financial plan is defined by the Act of March 11, 2022, on Homeland Defense. Pursuant to Article 41, Section 1, the draft financial plan is prepared by the National Economy Bank (BGK), based on data provided by the Ministry of National Defense. Then the draft plan is agreed with the minister responsible for public finances (Article 42, paragraph 2, point 1 of the Act), and finally it is approved by the Minister of National Defence (Article 42, paragraph 2, point 2 of the Act).
Financing the arms sector
Poland’s economic transformation, which began after 1989, largely adopted a model of economic development based on so-called Foreign Direct Investment (FDI), with designated special economic zones (SEZs) as a key element in attracting foreign capital, beyond the argument of low labor costs or a pro-European political orientation. Since the beginning of the economic transformation, Poland has changed radically, and in 2018, the so-called Polish Investment Zone (PIZ) was introduced, encompassing the entire country, replacing the previously existing Special Economic Zones. PSIs are a form of support for new investments through tax breaks. They are also intended to modernize towards a more innovative economy and reduce development gaps (the investment’s location also influences the amount of support; for example, they will be higher if the investment is implemented in a district with a high unemployment rate relative to the average).
This is important due to the recent amendment (June 13, 2025) to the regulation of the Council of Ministers of December 27, 2022. on state aid granted to certain entrepreneurs for the implementation of new investments, issued on the basis of art. 14 sec. 3 points 1-10 and 12 of the Act, because the editorial unit contained in par. 2 sec. 1 point 1 of the Regulation was repealed, which stated that the decision on support (under PSI ) is not issuedfor conducting business activity in the scope of: production of weapons and ammunition specified in section C in division 25 in group 25.4 of the Polish Classification of Products and Services of the Regulation of the Council of Ministers of 4 September 2015 on the Polish Classification of Products and Services (PKWiU) (Journal of Laws item 1676, of 2017 item 2453, of 2018 item 2440, of 2019 item 2554 and of 2020 item 556). Currently, this restriction no longer exists, which could be a very significant change, as the scope of support available for investments under the PSI allows for corporate income tax exemption for several years or public aid of up to 60% of eligible investment costs.
The geopolitical situation is also leading to the emergence of support programs for the defense sector at the European Union level. On May 27, 2025, the Council adopted a regulation establishing the Instrument for Enhancing the Security of Europe (SAFE). The aim of the instrument, which is planned to allocate up to €150 billion, is to increase production capacity in the defense sector. Funds will be disbursed to states upon request and based on national plans. Importantly, in this case, the condition for obtaining a loan (competitive and long-term) will be joint procurement by at least two Member States, which is intended to counteract the fragmentation of the technological and industrial base of the defense sector. The instrument has introduced certain restrictions, including those regarding so-called priority areas. The aim is to cover categories of products directly related to defense (e.g., ammunition and missiles) and to comply, for example, with the political line of the President of France, Emmanuel Macron – buy European, because the products covered by the procurement, and in fact the cost of their components, should come in at least 65% from the EU, EEA-EFTA countries, and Ukraine. SAFE is the first of the programs that will collectively comprise the broader ReArm Europe / Readiness 2030 plan, which is to receive over €800 billion, according to the European Council conclusions of 6 March 2025. [6]
Additionally, at the end of last year, an act on financing activities aimed at increasing ammunition production capacity was adopted[7]. As stated in Article 1, “the act specifies additional sources of financing for activities aimed at increasing ammunition production capacity in the territory of the Republic of Poland, including the implementation of strategically important investments for the country’s security.” The act provides for the transfer of PLN 2 billion from the Ministry of National Defense funds to the “State Assets” section of the state budget, and then the minister responsible for state assets transfers the funds in question to the so-called Capital Investment Fund (Article 2 of the Act on Financing Activities Aimed at Increasing Ammunition Production Capacity). The whole maneuver is that the funds that will go to the Capital Investment Fund will be allocated to the acquisition or taking up of shares by the State Treasury in companies related to the production of ammunition, which is simply a way of financing such companies.
[1]This is a requirement resulting from the declaration of the NATO summit in Newport in Wales in 2014, where a level of at least 2% of GDP was set for defence spending.
[2]Source: https://businessinsider.com.pl/wiadomosci/nato-zdecydowalo-tyle-kraje-beda-inwestowac-w-obronnosc/4k8tfjp [accessed: 10/07/25].
[3] https://www.osw.waw.pl/pl/publikacje/komentarze-osw/2025-06-26/szczyt-nato-w-hadze-powrot-trumpa-i-dwuskladnikowe-5-pkb-na#_ftn5 [accessed: 10/07/2025].
[4]There is a certain methodological difficulty in determining how much money Poland allocates and has allocated to defense in the past. This difficulty stems from the fact that, on the one hand, the budget act is merely a plan of revenues and expenditures, and the assumptions necessarily differ at least partially from reality. Furthermore, the accounting for defense spending at the NATO level differs from that at the national level. For example, according to Alliance rules, funds include military pensions and certain expenses that, at the national level, would be classified as the responsibility of the Ministry of Interior rather than the Ministry of Defense. However, as a rough estimate, defense spending in 2024 reached approximately 4% of GDP, the highest in the entire Alliance. Sources: 1) https://www.osw.waw.pl/pl/publikacje/komentarze-osw/2025-06-26/szczyt-nato-w-hadze-powrot-trumpa-i-dwuskladnikowe-5-pkb-na#_ftn5 , 2) https://dziennikzbrojny.pl/artykuly/art,2,4,12151,armie-swiata,wojsko-polskie,wydatki-obronne-polski-w-2024-roku [accessed: 10/07/25].
[5]According to a poll conducted for the daily El Mundo, the majority of Spaniards surveyed are against increasing defense spending on such a scale. Source: https://www.wnp.pl/wiadomosci/hiszpania-sondaz-wiekszosc-hiszpanow-przeciwko-wydawaniu-5-proc-pkb-na-obronnosc,959704.html [accessed: 10/07/2025].
[6]Source: https://www.consilium.europa.eu/pl/press/press-releases/2025/05/27/safe-council-adopts-150-billion-boost-for-joint-procurement-on-european-security-and-defence/ [accessed: 18/07/25]
[7]Act of 27 November 2024 on the financing of activities aimed at increasing ammunition production capacity (Journal of Laws, item 1826).