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OTTAWA (Reuters) – Canada’s budgetary watchdog estimated on Wednesday that a deal offering Volkswagen (ETR:VOWG_p) production tax credits to build a battery gigafactory in the country will cost taxpayers about C$2.4 billion ($1.8 billion) more than announced.
The forecast comes as the government tries to sweeten a subsidy deal for Jeep maker Stellantis, which stopped construction at a more-than C$5 billion electric vehicle (EV) battery plant in Ontario, saying Ottawa had reneged on promises.
Canada and German carmaker Volkswagen in April together committed more than C$20 billion for the planned Ontario plant, the biggest single investment in the country’s EV supply chain.
This included up to C$13.2 billion in manufacturing tax credits through 2032 and a C$700 million federal grant.
In a review of the deal, Parliamentary Budget Officer (PBO) Yves Giroux said the tax credits would end up costing a bit less than estimated, but Ottawa would need to make about C$2.8 billion in tax adjustments to ensure Volkswagen gets the support it was promised.
The Canadian government said its deal is designed to match production subsidies offered by the U.S. Inflation Reduction Act (IRA), a massive package of clean-tech incentives.
Under Canadian law, any monetary support a business receives from the government is considered income, and is therefore taxable. To make the deal match IRA subsidies, the federal government would have to forgive the taxes levied, the PBO said.
Canada, home to a large mining sector for minerals including lithium, nickel and cobalt, is trying to woo companies involved in all levels of the EV supply chain as the world seeks to cut carbon emissions.
Giroux said the economic benefits of the construction of the Volkswagen facility “are marginal”, but the PBO did not estimate the benefits of the factory when it is fully operational.
($1 = 1.3283 Canadian dollars)
