PBO says VW battery plant deal will cost Canada more than previously announced

OTTAWA – The parliamentary budget officer says Canada’s exclusive contract with German auto giant Volkswagen to build an electric-vehicle battery plant in southwestern Ontario will cost the federal government up to $16.3 billion over the next ten years.

That figure is higher than what the federal government said the deal would cost taxpayers, which included a $700-million upfront capital investment and up to $13.2 billion in production subsidies.

The PBO estimate includes the $700-million contribution for the construction of the plant and $12.8 billion in production support, but also estimates Ottawa will have to make additional tax adjustments that total $2.8 billion to match the benefits offered by the U.S. Inflation Reduction Act. That’s because the U.S. offers production tax credits that are tax-free, whereas the Canadian subsidies would have to be taxed under current tax legislation.

In response, Finance Minister Chrystia Freeland said Wednesday that the federal government plans to make the production subsidies it’s offering to Volkswagen tax-free to match the incentives offered by the U.S. Inflation Reduction Act.

“The IRA tax credits are not taxable, and so it makes sense that the treatment of our incentives, which are designed to level the playing field, would be comparable. And that is how we will proceed,” Freeland told reporters on Wednesday. She said her government would change current tax legislation to make the subsidies tax-free.

The report published Wednesday provides a fiscal and economic analysis of the construction phase of the facility only, leaving out the operation phase.

Yves Giroux, the parliamentary budget officer, says his office is unable to take on analysis of the costs and benefits arising from the operation of the plant until it receives clearance from the federal government and Volkswagen.

He says the deal includes confidential information regarding minimum production levels that cannot be disclosed directly or indirectly.

“It’s very hard to assess without doing further analysis and without being relieved of the confidentiality provisions that cover the production schedule,” Giroux said in a media briefing.

The analysis of the construction phase estimates that the deal would create a peak of 3,100 jobs at the start of 2026, but that figure would fall to 1,400 by the end of 2027.

The federal government announced in April the details of the deal – which would see Volkswagen build its first gigafactory outside of Europe – and promised it would create up to 3,000 direct jobs and 30,000 indirect jobs.
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