Saturday, October 18, 2008

Bartlett's big spend may miss its mark

Following the Federal Government's $10.4 billion package to pump-prime the national economy, Premier David Bartlett has announced his own extra spending measures for Tasmania.

The main plank of the State Government's package is a $100-million scheme to give loans to small and medium-sized businesses.  This new Tasmanian Industry Support Scheme (TISS) is expected to commence by November.

A politically clever move, it complements Prime Minister Kevin Rudd's spending on households with more funding for business.  But will it work?

The lack of detail surrounding the scheme is concerning, given that the Government proposes to spend taxpayers' money.  The Premier's announcement states that business applicants must have sound governance structures and sound balance sheets, without any further details.

Another funding condition is that businesses that access the fund must not retrench workers.  This doesn't sound too realistic.

Would business receiving TISS funding suddenly lose the grant if it needs to retrench, say, an unproductive worker but replaces him or her with a more productive one?

The TISS scheme is an addition to the plethora of existing government schemes designed to assist business.  There's the Enterprise Development program, Tasmanian Innovations program, Research Partnerships program, a Springboard Accelerator program, New Market Access program, Market Ready Commercialisation Program, a micro-credit program for women entrepreneurs, an export assistance scheme and an interest rate for young farmers.

If the State Government is keen to give businesses extra funding, it is not unreasonable to ask why funding was not boosted for existing programs.  Are they too inflexible to meet business needs in changing economic circumstances?

It seems that another grant program on top of the existing pile only gives the economic development department bureaucrats another reason to exist.

The ability of governments to pick out industry winners has a demonstrably poor record over a long period.  For example, the economic pain experienced by Victoria during the Cain-Kirner period was exacerbated by its Economic Development Corporation extending loans to business projects of poor commercial viability.

The Australian car industry has been on its knees for at least a decade, with plants closing in Victoria and South Australia, in spite of the continued intravenous drip of funding from governments.  Other industries receiving government support, such as textiles, clothing and footwear, have met with a similar fate.

A Tasmanian Auditor General study in 2000, when questioning the transparency of business grants, even suggesting that the department produce basic administrative guidelines.  The prospects for the Tasmanian government picking viable businesses through the TISS are highly questionable.

When announcing the package, Mr Bartlett said that governments are elected to lead and we are taking the steps to reassure Tasmanians in a time of economic uncertainty.

It must always be remembered that the Government is spending taxpayers' money and so any spending measure must be made with the greatest of care.  If there are any doubts whatsoever, the State Government should instead deliver comprehensive tax cuts to allow individuals and businesses to pick themselves up in uncertain economic times.

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