A recent report from the Parliamentary Budget Officer (PBO) reveals that the cost of provincial and federal support for electric vehicle (EV) battery manufacturing in Canada is estimated to be $5.8 billion higher than previously projected by the government. The report, released on Friday, provides an analysis of the expenses incurred by the governments in their deals with Northvolt, Volkswagen, and Stellantis-LGES for establishing EV battery manufacturing facilities in the country.
While the governments of Canada, Ontario, and Quebec have announced a combined $37.7 billion in subsidies and construction aid for the three companies, the PBO report anticipates that the total governmental support between 2022 and 2033 will likely reach $43.6 billion. This additional $5.8 billion includes the foregone corporate income tax revenues for Ottawa and the two provinces.
One of the key reasons for the increased cost is the Canadian subsidies being designed to align with the U.S. Advanced Manufacturing Tax Credit, which is a part of the Inflation Reduction Act in the United States. As highlighted in a previous PBO report, a tax adjustment was needed for the battery manufacturers to achieve after-tax equivalency with the U.S. program.
The report suggests that the federal government will bear 62 percent of the total cost, while the governments of Ontario and Quebec will shoulder the remaining 38 percent. Additionally, the PBO estimates that it will take approximately 11 years for the Northvolt production subsidy to break even for the government, 15 years for the Volkswagen subsidy, and 23 years for the Stellantis subsidy.
It is worth noting that the production subsidies provided to Volkswagen will not be subject to taxation, as clarified by Finance Minister Chrystia Freeland. The report assumes that the same exemption will apply to the subsidies provided to Stellantis and Northvolt.
The government aims to increase transparency surrounding these announcements, providing a comprehensive estimate of the total cost of government support for EV battery manufacturing, including both announced and non-announced expenses. The commitment to expanding the EV sector and promoting sustainable transportation options remains a significant priority for Canada.
Frequently Asked Questions:
1. What is the total estimated cost of government support for EV battery manufacturing in Canada?
The total estimated cost is $43.6 billion between 2022 and 2033, $5.8 billion higher than previously projected.
2. How will the cost be divided between the federal government and the provinces?
The federal government will bear 62 percent of the total cost, while the governments of Ontario and Quebec will shoulder the remaining 38 percent.
3. What is the anticipated break-even timeline for the subsidies?
The break-even timeline is estimated to be 11 years for the Northvolt subsidy, 15 years for the Volkswagen subsidy, and 23 years for the Stellantis subsidy.
4. Will the subsidies provided to the battery manufacturers be subject to taxation?
The subsidies provided to Volkswagen will not be subject to taxation, and it is assumed that the same exemption will apply to the subsidies offered to Stellantis and Northvolt.