An independent watchdog is calling into question the advantages to Canada’s economy of building Volkswagen’s first overseas electric vehicle battery plant in the country.
In a new report released Wednesday, Canada’s parliamentary budget officer (PBO) said the economic benefits of constructing Volkswagen’s plant will be “marginal” and could cost the federal government an estimated $16.3 billion over the next 10 years.
That is higher than the price tag initially attached to the deal, with the PBO citing additional tax adjustments in the report.
The report examined the economic and budgetary impact of the plant that will be built in St. Thomas, Ont., after Canada sealed a contract with the German auto giant. Production is set to start in 2027.
“Based on our analysis, the federal government’s financial commitment to Volkswagen will total around $16.3 billion over the period of the agreement,” said PBO Yves Giroux in a statement.
“The economic benefits of building the new facility are marginal,” he said.
The PBO analysis also 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 — lower than what Ottawa has claimed it would.
The estimated cost of $16.3 billion included $12.8 billion in production support, $700 million contribution through the Strategic Innovation Fund (SIF) and an estimated $2.8 billion in tax adjustments, the PBO said.
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.
Prime Minister Justin Trudeau said the plant would contribute over $200 billion to the Canadian economy over the coming decades.
The Ontario government has separately agreed to pump an additional $500 million in “direct support” to Volkswagen.
Deputy Prime Minister Chrystia Freeland said the Volkswagen investment was “fully accounted” for in the federal budget and that the PBO report has drawn the wrong conclusion about the deal.
“We are very confident in the value of the VW investment,” she told reporters in Ottawa Wednesday.
“I think the principal point of difference comes when considering the future tax treatment of the VW investment and the PBO .. has drawn one conclusion about what that tax treatment will be, and that’s a hypothetical conclusion,” Freeland added.
When asked if that was the wrong conclusion, she simply replied: “Yes”.
The plant is being touted by Ottawa as a “game changer” in the push to make Canada more competitive in the global EV race and lessen its reliance on China.
However, critics have raised concerns about the cost of securing the Volkswagen deal and whether the region will have the skilled labour and housing to support the plant.
The PBO said that it will continue to examine the government’s support to the Volkswagen plant and “will undertake an economic and fiscal analysis of the production support over the coming months.”
— with files from Global News’ Jacquelyn LeBel and The Canadian Press
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