VW and Stellanties aren’t walking away with billions of tax dollars

Despite claims Trudeau gave the two car makers tens of billions in subsidies, it’s just not true.

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The easy thing to do in commenting on the deals the Trudeau government has signed with Volkswagen and Stellantis would be to slam them.

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The more difficult thing to do is to look at the facts and evaluate them objectively rather than via emotions.

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You’ve heard that the government has offered these companies billions of dollars in subsidies, that this is money out the window and we are on the hook for it no matter what.

Given the news that VW is laying off 269 temporary workers at the Zwickau plant after subsidies were phased out, the claim has been made that the same thing will happen here. Say goodbye to the $13 billion we gave Volkswagen several messages said after the news broke.

That this came on the heels of a report from the Parliamentary Budget Officer saying it would take 20 years to recoup these “subsidies” made things even worse.

I hate to be the one defending the Trudeau government on this issue but the claims being made by critics on the left and the right and by the PBO just simply aren’t fair. The Trudeau government’s offer to both VW and Stellantis is based on what is described as production tax credits.

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That means that if you don’t produce anything, you don’t get the tax break.

That’s what this is all about, a tax break, not a direct subsidy where the government cuts a company a cheque and they get to keep the money no matter what happens. There was a time when that is how governments in this country operated and it didn’t go well for anyone involved, especially taxpayers.

What Trudeau offered VW and Stellantis, though, was a variation on what the Biden administration offered the industry through the badly named Inflation Reduction Act.

Under that law, the American government is offering what is called the Advanced Manufacturing Tax Credit. To qualify for that credit, the business, called the taxpayer, must have a qualifying product, “produced by the taxpayer, and during the taxable year, sold by such taxpayer to an unrelated person.”

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That’s not a subsidy, that’s a tax break.

You can agree or disagree with that tax break, but it is not handing money over to a company for nothing. If they don’t produce anything, they don’t get the tax break, if they produce the products, they get a tax break.

Let’s put this another way.

If VW makes a battery and the tax on that battery would have been $100, this deal charges them $75 but only if job and production goals are met. Meaning, if they don’t make anything, it doesn’t matter.

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Meanwhile, the government gets the remaining tax on the battery that wouldn’t have existed without the production, plus they get the income tax and payroll taxes of all the employees working at the plant that never would have existed without this tax credit.

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The alternative to the tax credit, which the Americans were offering to attract both Stellantis and VW, was to say no to the tax credit and then collect 100% of nothing.

Some people, it seems, would prefer to charge the full tax on zero economic activity than a lower tax on significant economic activity.

If you want to be angry about these tax credits being offered, though, don’t be angry with Justin Trudeau and the Liberal government, be angry with Joe Biden and the Democrats in Washington who pushed this through.

The deals to attract Stellantis and VW were well on their way to being secured before Biden, the man most Canadians would vote for in the American presidential election, tried to lure both plants stateside with this tax credit.

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