The deal with Volkswagen to build an an electric vehicle battery manufacturing plant, announced by Ottawa and Ontario in April, will cost $16.3-billion
The federal government’s deal with Volkswagen to build an electric vehicle battery manufacturing plant in southern Ontario will cost $16.3-billion, about $3-billion more than the initial estimate due to additional money needed to offset taxes, according to a new Parliamentary Budget Office report.
While the federal government has not published details the deal, the PBO estimates the government would have to offer a tax adjustment to the “after-tax equivalency” offered under U.S. President Joe Biden’s IRA, in order to stay competitive. The $16.3-billion estimate will also depend on the exchange rate, as well as output and sales from the Volkswagen plant.
He said the report took into consideration the government’s repeated, and public, aim of matching U.S. subsidies. In the U.S., production subsidies are provided through refundable tax credits, but in Canada they are direct subsidies, and in current taxation rules, they are taxable under the Income Tax Act.
Finance Minister Chrystia Freeland said she hadn’t yet read the report but said the federal money was accounted for.
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