Finance Minister Chrystia Freeland is dismissing a report from the Parliamentary Budget Officer (PBO) that concludes the Volkswagen battery gigafactory in St. Thomas, Ontario will have only a “marginal” economic impact.
When the project was first announced in April with C$13.2 billion in federal and provincial support, the subsidy figure “raised many eyebrows from opposition leaders, pushing Conservative leader Pierre Poilievre to call on the PBO to conduct a review of the government’s plans,” iPolitics reports. “The federal government justified the cost by touting the project as a major economic boon to St. Thomas and Canada, adding 3,000 direct jobs to the market and 30,000 indirect jobs.”
Last week, the PBO said the project would cost more than the government had estimated while producing peak employment of 3,100 in 2026, but only 1,400 jobs by the end of construction in 2027, iPolitics says, with no mention of indirect job creation. That added up to a “marginal” economic impact, the PBO said, equal to Ottawa’s $700-million contribution during the construction phase of the project.
But Freeland pushed back on the critique. “We could not and will not accept a universe in which investment will be sucked out of Canada to south of the border,” she told media Wednesday.
And Canadians would seem to agree: an Abacus poll released last week found that only 21% of respondents were familiar with the issue, and three-quarters “are in favour of hefty government subsidies to Stellantis and Volkswagen,” the Toronto Star reports.
The PBO report was limited to a fiscal and economic analysis of the construction phase of the facility, leaving out the operation phase, The Canadian Press writes. Parliamentary Budget Officer Yves Giroux said that was because his office could not take on a cost-benefit analysis of the plant’s operations until it receives clearance from the federal government and Volkswagen.
He said the deal includes confidential information on 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 PBO also concluded that the contract with the German auto giant would cost the federal government up to $16.3 billion over the next 10 years, after factoring in the $2.8 billion in tax adjustments that would be needed to match the incentives offered by the U.S. Inflation Reduction Act (IRA). 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 legislation, CP explains.
Freeland confirmed that Ottawa will change those existing tax rules to match the U.S. subsidies, adding that the cost to the federal treasury is already factored into the government’s plans. “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.
“It’s really important for Canadians to know that the Volkswagen investment is fully accounted for in the fiscal framework,” she added. “We knew about it when we tabled the budget and it is in the underlying numbers.”
“The battery plant is set to be Volkswagen’s largest and the first to be built outside of Europe,” iPolitics writes. “It is expected to span over 370 acres (150 hectares) and the entire industrial park will stretch out over 1,500 acres (607 hectares).” The factory is expected to produce up to 90 gigawatt-hours of battery capacity per year, enough to power about a million electric vehicles.
The main body of this report was first published by The Canadian Press on June 14, 2023.
