Volkswagen battery plant to cost Ottawa over $16B: budget watchdog | CBC News

A new Volkswagen electric battery plant in St. Thomas, Ont., will cost the federal government over $16 billion and construction of the facility will bring a small economic benefit, according to an analysis from 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,” Parliament Budget Officer Yves Giroux said in a news release. 

The federal government announced the deal with Volkswagen earlier this year. Ottawa agreed to provide up to $13.2 billion in production subsidies to the company over the next decade.

Conservative Leader Pierre Poilievre has criticized the cost of the deal, but Prime Minister Justin Trudeau and Innovation, Science and Industry Minister François-Philippe Champagne have defended it as an economic boon that will bring approximately 3,000 jobs and be worth over $200 billion to the Canadian economy.

Champagne has called the agreement a “game changer” for the Canadian economy. 

Giroux said in a news conference that the PBO did not look at the broader economic affects of the plant in comparison to the production subsides. To do that, he said, would require confidential business information from Volkswagen that the PBO is not allowed to make public. Giroux said the federal government did provide the PBO with details of the deal that aren’t yet public.

But the report also says the deal will cost significantly more than what the federal government has announced. Ottawa will have to provide approximately $12.8 billion in production subsidies, the PBO estimated, and spend the $700 million it’s pledged through its Strategic Innovation Fund (SIF).

While those numbers are in line with the costs the federal government has acknowledged, the PBO report says there’s another cost — tax adjustment dollars the government will have to give to Volkswagen, at a price tag of $2.8 billion, the PBO said.

Those tax adjustments are a result of the government having to compete with the American Inflation Reduction Act (IRA)

“[The tax adjustments] are needed to achieve an after-tax equivalency to support offered under the U.S. Inflation Reduction Act (IRA), as per the government’s stated intention,” the PBO news release said.

Report says economic benefit small

Giroux said the plant’s construction is unlikely to bring a significant economic boost.

“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,” Giroux said in the release.

But Giroux said in the news conference that the economic increase will likely cover the government’s costs when it comes to building the plant.

The Ontario Government has pledged $500 million in direct support for Volkswagen, but the PBO did not include that funding in its analysis.