The head of NATO threw down the gauntlet Monday, saying he expects all members to increase what they spend on their militaries even as a new report showed Canada lagging behind most of its allies.

Speaking in Brussels where he released his annual state-of-the-alliance report, NATO Secretary General Jens Stoltenberg said it is incumbent on all members to spend two per cent of GDP on defence.

That is the target all NATO members, including Canada, agreed to work towards in 2014.

"All our efforts must be underpinned by adequate resources and fair burden-sharing," Stoltenberg said.

"It is realistic that all allies should reach this goal. All allies have agreed to do it at the highest level. It can be done."

Stoltenberg's report said Canada saw a small bump in defence spending in 2016, which pushed the percentage of its GDP spent on defence to 1.02 from 0.98.

The increase helped Canada move up to 20th from 23rd in terms of spending among NATO's 28 allies, putting it in a three-way tie with Hungary and Slovenia.

But it was still the smallest share of GDP that Canada has spent on defence since 2012, while only Belgium, the Czech Republic, Iceland, Luxembourg and Spain spent less.

Canada maintains 'there are many ways' of contributing

The figures have taken on new importance following the election of U.S. President Donald Trump, who has complained about NATO allies not spending enough on defence.

Prime Minister Justin Trudeau appeared to all but dismiss the two per cent target during a visit to Germany last month, saying: "There are many ways of evaluating one's contribution to NATO."

An unidentified sailor prepares to board HMCS St. John's heading to the Mediterranean to support NATO Maritime Group 2 as part of Operation Reassurance. The Canadian government has argued GDP spending is not the only way to contribute to NATO. (Andrew Vaughan/The Canadian Press)

That is the message the government has repeatedly delivered, emphasizing Canada's military contributions to Latvia, Ukraine and Iraq in lieu of large spending increases.

While Liberal insiders say Canada's message has resonated in Washington, Stoltenberg was unwavering in his insistence that all allies meet the two per cent target.

At one point during Monday's news conference, he listed the many ways that Spain has contributed to NATO operations and security, which includes contributing troops to a Canadian-led battle group in Latvia.

"Having said that, of course Spain, as many other allies, invests too little in defence," Stoltenberg said.

"And that's exactly why we decided in 2014 to stop the cuts, gradually increase, and move towards spending two per cent of GDP on defence. And I expect that Spain will deliver on that."

Political difficulties acknowledged

A former prime minister of Norway, Stoltenberg acknowledged the difficult choices politicians must make when it comes to spending limited taxpayer dollars.

He said politicians prefer to spend on education, health and infrastructure and many countries cut defence spending as tensions eased in the wake of the Cold War.

Defense Secretary Jim Mattis and Canadian Defense Minister Harjit Sajjan stand for the National Anthem of the United States. Sajjan says he has ordered officials to look at how Canada calculates its defence spending compared with other NATO countries. (Cliff Owen/Associated Press)

"But my message is that if we are decreasing defence spending in times with reduced tensions, we have to be able to increase defence spending when tensions are going up and now tensions have gone up."

Canada spends about $20 billion a year on defence and would need to double that to reach the NATO target.

Defence Minister Harjit Sajjan recently revealed that he has ordered officials to look at how Canada calculates its defence spending compared with other NATO countries.

Only five NATO members currently spend two per cent of GDP on defence, though several have committed to reaching the target in the next few years.