Chrystia Freeland said on Wednesday that her government plans to tax-exempt the production subsidies it offers Volkswagen, to match the incentives offered by the US Inflation Reduction Act.
The federal finance minister made the comments after the Parliamentary Budget Officer (PBO) released a report on Wednesday morning on Ottawa’s exclusive contract with German auto giant Volkswagen to build a of electric vehicle batteries in southwestern Ontario.
The PBO report concludes that this agreement will cost the federal government up to $16.3 billion over the next ten years.
However, this estimate is higher than what the federal government had planned to spend in public funds — an initial contribution of $700 million, as part of the Strategic Innovation Fund, and up to $13.2 billion in appropriations production tax thereafter.
The PBO estimate includes the $700 million contribution for plant construction and $12.8 billion in production support. But the Parliamentary Budget Officer estimates that for production subsidies to match the incentives offered by the United States, Ottawa would have to make tax adjustments totaling $2.8 billion.
This is because Washington offers production tax credits that are not taxable, whereas under the current tax system, Canadian subsidies should be taxed.
“Tax credits [de la loi américaine sur la réduction de l’inflation] are not taxable, so it makes sense that the treatment of our incentives, which aim to level the playing field, should be comparable. And that’s how we’re going to do it,” Minister Freeland told reporters on Wednesday. She indicated that her government would amend the current tax law to exempt these grants from taxation.
Construction phase
The PBO report published on Wednesday also provides a financial and economic analysis of the construction phase of the plant, whose “benefits are marginal”, leaving aside the operating phase.
Yves Giroux says his office is unable to undertake an analysis of the costs and benefits of operating the plant until it receives clearance from the federal government and Volkswagen. He explains that the agreement includes confidential information regarding minimum production levels, which cannot be disclosed directly or indirectly.
“It is very difficult to assess [les coûts et les avantages découlant de l’exploitation de l’usine] without doing any other analyzes and without being relieved of the confidentiality provisions that cover the production schedule,” explained Mr. Giroux during a press briefing on Wednesday morning.
Analysis of the construction phase alone predicts that the deal would create a peak of 3,100 jobs in early 2026, but that figure would drop to 1,400 by the end of 2027.
“Unacceptable”, says the Bloc
The federal government announced details of the deal in April, which would see Volkswagen build its first gigafactory outside Europe. Ottawa promised that this plant would create up to 3,000 direct jobs and 30,000 indirect jobs.
Minister Freeland also clarified Wednesday morning that she had not yet analyzed the PBO’s report, but she assured that this agreement had been taken into account in the most recent federal budget.
The leader of the Bloc Québécois, Yves-François Blanchet, for his part asked Minister Freeland on Wednesday to review this agreement, which was already “amazing” even before the upward estimates from the PBO.
“Eleven million dollars per job created, with the main effect […] to extract a battery sector that is deeply Quebec in its essence, to bring it to the automotive industry of Ontario […]all of this is unacceptable, ”he said in a preliminary statement, before answering questions from journalists.