Editorial: State grants to business bit of a risk

A few weeks ago, when the Herald on Sunday disclosed that Hubbard Foods, a successful cereal manufacturer, had received nearly $100,000 in Government grants to business, the response of Auckland's newly elected mayor Dick Hubbard was classic: If the Government made public money available, he said, his company was entitled to take it. Therein lies the problem with policies that fall into the category of "corporate welfare". It is practically impossible to prevent public money going to firms that could easily attract additional capital from private investors.

The companies cannot be blamed for putting their hands out. As Mr Hubbard said, "It is the Government's decision". Private capital requires a company to pay interest, if it is a loan, or dividends on shares. Public grants merely require the company to carry out the expansion or project for which it sought the finance. And providers of public money, as the Audit Office has again discovered, do not always have routines established to check that recipients are putting the grants to good use.

This Government's corporate welfare agency is called New Zealand Trade and Enterprise. It answers to the Minister of Economic Development, Jim Anderton, who never tires of proclaiming the virtues of "picking winners" rather than leaving private investors to respond entirely to market signals. The first "winner" he picked was Sovereign Yachts which, at last report, had built only one boat and provided many fewer jobs than expected since coming from Canada to the prime site Mr Anderton cleared for it at the Hobsonville airbase.

That experience appears not to have disturbed the ministry at all. The Audit Office, which last year criticised a hand-out to The Warehouse has now completed an inquiry into the various grant programmes and another into the way the ministry hosts visiting investors. The auditors' conclusions are not encouraging. They have found NZ Trade and Enterprise has not yet established a system to ensure that for each programme consideration is given to risk assessment, data collection, documentation and monitoring.

For example, the agency makes grants to business groupings it calls "enterprise networks". The Audit Office reports that "NZTE was unable to tell us how many recipients were in each network and had considerable difficulty telling us how much had been paid to each network to date". The agency "does not yet have a consistent approach to the assessment of risk", the report continues. "This has implications for determining who should be awarded grants and also affects ... monitoring efforts.

"Monitoring of grant recipients was inconsistent and the collection of monitoring information was inconsistent between grant programmes. For [one category] 20 per cent of each grant was withheld until the grant recipient provided the required report at the end of the project. In some other grant programmes, however, no funding was withheld, nor was there any requirement to provide NZTE with information on the impact of the funding". Similar deficiencies were found in the records and evaluations of the various investors the agency has entertained here.

Mr Anderton sounded not much concerned. He said the programmes were designed to minimise "red tape". Fortunately, the Government has never allocated Mr Anderton's ministry much money - just $47 million in the past fiscal year - which means its grants are probably of marginal significance in any company's investment calculations. There might be the odd project of such doubtful profitability that a $100,000 gift from the Government entices the company to take a chance. But for the most part corporate investment in this country must still respond to market prices and competitive advantage, the only reliable criteria for the strength of our economy in the long run.