The latest report from the Parliamentary Budget Officer (PBO) has revealed that the federal and Ontario governments’ plan to subsidize new electric vehicle (EV) battery plants with $28.2 billion could result in a massive loss for taxpayers. The PBO estimates that it will take 20 years for these subsidies to break even, far more than the government’s initial estimate of 3.3 years. If this projection is accurate, it would make these subsidies a disastrous investment costing taxpayers an estimated $15 billion.
The PBO’s analysis, while generous, does not account for certain factors such as public debt charges and the devaluation of the dollar over time. A more comprehensive analysis would likely reveal a greater loss. Indeed, a rough estimate suggests that the actual loss to taxpayers could be as high as $14 to $15 billion. This estimate assumes that subsidies will be spread evenly over the next two years, tax revenues will remain flat from 2024 to 2029 and then scale with GDP, and a nominal discount rate of 10 percent is applied.
It is important to note that even this generous estimate is significantly different from breaking even. Additionally, it is unclear whether all tax revenues should be included in the calculation, as alternative economic activities could generate tax revenue in the absence of the EV battery plants.
Despite the PBO report debunking the government’s claim of a few years’ break-even period, Industry Minister François-Philippe Champagne insists that the subsidies are a good deal for Canadians, the auto sector, and workers. However, this claim only highlights the financial illiteracy of the government. The $28 billion in subsidies is part of a larger effort by the government to reorganize the automobile industry in the name of jobs and climate change. But the financial losses of this endeavor outweigh the minimal environmental benefits.
Sources:
– Parliamentary Budget Officer report
– The Canadian Press