The federal government’s deal with Volkswagen made earlier this year to incentivize the European automaking giant to build its first overseas electric vehicle (EV) battery manufacturing plant in Ontario will cost taxpayers over $16 billion, says the Parliamentary Budget Officer (PBO).
“Based on our analysis, the federal government’s financial commitment to Volkswagen will total around $16.3 billion over the period of the agreement,” PBO Yves Giroux said in a news release on June 14 after his office released its “Fiscal Analysis of Canada’s Support for Volkswagen’s Electric Vehicle Battery Manufacturing Plant.”
The PBO based his estimates on figures and contracts provided to his office in May by Finance Minister Chrystia Freeland and Industry Minister François-Philippe Champagne.
Giroux said the price tag on the deal includes $12.8 billion in federal production support for Volkswagen, a $700 million contribution through the Strategic Innovation Fund to build the battery plant, and $2.8 billion in tax adjustments.
The PBO added that the estimate depends on both future exchange rates and the battery plant’s output and sales volumes.
Giroux said Canada will enjoy only “marginal” economic benefits from Volkswagen building the new plant in Ontario.
“We estimate the plant will increase real GDP in Canada by 0.01 per cent above its baseline projection by 2027 and will add around 1,400 jobs by the same time,” he said in the statement.
Cost Estimates
Giroux’s estimate is more than 15 percent higher than what the federal government previously predicted its deal with Volkswagen would cost.The government originally announced in March that PowerCo, a subsidiary company of Volkswagen, would be building Volkswagen’s first overseas battery cell plant in St. Thomas, Ontario.
However, it did not make its investment in the deal public until over a month later when Minister Champagne said the federal government committed between $8 and $13.2 billion in subsidies—along with a $700 million grant—to incentivize Volkswagen to build the battery factory in Canada.
Prime Minister Justin Trudeau said in April that Ottawa “put up a lot of money” to compete with a number of other countries—including the United States—in bidding for Volkswagen to build the plant in Canada.
The 15 percent difference between the PBO’s estimate and the federal government’s announced cost of the deal came down to the $2.8 billion tax adjustment that Giroux’s office accounted for in its report.
“Based on PBO research, there is an additional cost that is excluded from these [the government’s] figures—more federal money to offset the taxes Volkswagen will need to pay on the federal production support,” the PBO wrote.
However, in terms of the actual federal production support for building the plant, Giroux’s $12.8 billion estimate is $400 million lower than the $13.2 billion Ottawa predicted it would cost.
