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Matthew Lau: Every federal party gets auto policy wrong

The best policy would let Canadians decide for themselves which vehicles they want to drive. No federal party can resist overruling them

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For federal government policy for the automobile sector, here are your three choices.

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First, there’s the Liberal auto strategy, which expands government control, restricts consumer choice and is economically damaging. Second, there are the Conservatives’ proposals, which also restrict choice and are based on faulty economic reasoning. Third, there’s the NDP, whose policies — you guessed it — are also bad for consumers and the economy.

Matthew Lau: Every federal party gets auto policy wrong Back to video

Start with the Liberal auto strategy announced last month. It contains numerous interventionist measures, all bad. For example, it provides a combined $3.1 billion in handouts from two federal funds to help auto manufacturing grow. But corporate welfare of this sort is economically harmful and a waste of taxpayer money. Activity that is actually profitable for private investors (its benefits exceed its costs) does not require subsidies, while activity that does (because its costs exceed its benefits) is economically harmful.

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The government also wants to revive the $5,000-per-vehicle taxpayer incentive for electric vehicle (EV) purchases. This unfairly tilts the playing field by favouring Canadians who buy cars the government likes at the expense of everyone else. The estimated taxpayer cost is $2.3 billion, even though studies have shown that EV subsidies fail a cost-benefit test by a significant margin, as the estimated environmental benefits from averted greenhouse gas (GHG) emissions are far lower than the cost to taxpayers.

Under immense pressure, the Liberals recently walked back their EV “mandate,” which would have banned the sale of new conventionally-powered vehicles by 2035. But they replaced it with new GHG emissions standards designed to expand the EV share of the market to 90 per cent by 2040. So instead of restricting the choices of 100 per cent of consumers by 2035, the Liberals now want to restrict the choices of 90 per cent of consumers by 2040 — which is still very bad. And they plan to heap yet more costs onto taxpayers, including $1.5 billion for EV charging network enhancements and $570 million for employment assistance and re-skilling. They have also maintained countervailing tariffs on auto imports from the United States.

According to a recent Cato Institute article on U.S. tariff policy that cites seven rigorous studies conducted since October 2025, the burden of U.S. tariffs falls mainly on Americans — as economic theory predicts. A corollary is that Canadian tariffs on auto imports from the U.S. primarily burden Canadian consumers, not U.S. producers. Thank you, Ottawa.

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If the Liberal government’s auto strategy is no good, what about the Conservatives and the NDP?

In February, both parties voted to amend the current strategy by removing subsidies for foreign-made EVs, linking subsidization to domestic manufacturing, and eliminating GST on Canadian-made vehicles.

The motion was defeated, which is just as well, as it is economically faulty. Taxes and subsidies applied unevenly (to favour domestic production over foreign production) unfairly favour some consumers over others. Just as the federal government shouldn’t tell consumers what types of vehicles to buy, it also shouldn’t tell them where to buy them from — unless, as some have argued, there’s a legitimate security risk from Chinese EV imports, which is a separate issue.

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Removing the GST from vehicles while still applying it to other goods and services is also unfair: it benefits those who choose to spend their money on vehicles rather than other things. As a general rule, to keep taxes as low and un-damaging as possible, they should be applied widely and evenly and not favour some goods and services over others.

So there you have it. When it comes to federal auto-sector policies, no party gets it right. The choice is bad Liberal policies, bad Conservative policies or bad NDP policies.

Matthew Lau is an adjunct scholar with the Fraser Institute.

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