Government grants worth a billion dollars a year are often wasted, according to an in-depth study by one of the country's top accountancy experts. The grants go to companies which do not perform well, a study done at the Institute of Public Accountants at Deakin University found.
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The professor of accountancy there said the findings indicated there may be a "grant mentality" or a "grant culture" in some firms which get government grants. He criticized the way the Commonwealth government gives out money, calling it "opaque" so that whether public money was being wasted was hard to assess.
The academics tracked the performance of 141,800 firms that received a total of $4.2 billion in Commonwealth government grants from 2018 to 2022.
They measured the firms' performances in terms of factors like profitability and employment growth and found that grant recipients often demonstrated unspectacular or worse results.
"We find many of the grants generated no significant improvements in the performance of the firms that received them. In some cases they might have harmed them," George Tanewski, professor of accounting at the university, said.
"The firms that received repeated grants (almost two-thirds of the total) exhibited lower than normal efficiency and productivity. This suggests Australia's system of grants might be propping up and sustaining an entire cohort of underperforming 'subsidy businesses'."
"These generally low-performing multiple grant recipients got $1.3 billion of the $4.2 billion total," Professor Tanewski added.
The conclusions mirror those in other countries.
A group of Swedish experts found that the best firms in an industry didn't seek grants from government but the worst became what they called "subsidy entrepreneurs".
"The results suggest that highly productive entrepreneurs abstain from seeking grants, moderately productive firms allocate a share of their effort to grant seeking, and low-productivity firms allocate most resources to seeking grants," the academics found.
"Due to their efforts in seeking grants, these low-productive subsidy entrepreneurs also have a relatively high probability of receiving the grants."
In Australia, Professor Tanewski found that the way grants were allocated was important.
The average picture looked good. On average, the firms that received the grants boosted their employment, their business performance and their efficiency.
But the way in which the recipient was selected mattered a lot.
"The firms that were simply awarded grants on the basis of being eligible rather than having to compete for them did badly. They suffered average declines in their returns on assets of 4.9 per cent and declines in their turnover of 6.6 per cent.
"The overwhelming majority of grants (eight in ten) were awarded this way. Applicants merely had to meet eligibility criteria, without any assessment of their merits relative to other applicants or their obligations to taxpayers.
"Older businesses gained more from grants than younger businesses. Recipients aged ten years and older increased their returns on assets by an average of 3.5 per cent compared to startups, which increased their returns by an average of 2.7 per cent."
Steve Evans
Steve Evans is a reporter on The Canberra Times. He's been a BBC correspondent in New York, London, Berlin and Seoul and the sole reporter/photographer/paper deliverer on The Glen Innes Examiner in country New South Wales. "All the jobs have been fascinating - and so it continues."
Steve Evans is a reporter on The Canberra Times. He's been a BBC correspondent in New York, London, Berlin and Seoul and the sole reporter/photographer/paper deliverer on The Glen Innes Examiner in country New South Wales. "All the jobs have been fascinating - and so it continues."
