With news this week that the government has committed an additional $200 million dollars to Australian car makers – with no information on how that might be spent – you might have missed that the Feds also kicked in $23.6 million to Toyota for upgrades to the Camry.
Back in 2012, the federal and state governments also provided $275 million in ‘co-investment’ to Holden supposedly to secure manufacturing operations for 10 years. Yet just 18 months later, Holden is rumoured to be asking for another $200 million. Ford Australia was also given a $34 million ‘co-investment’ in 2012; but this year announced they would be closing their doors in 2016.
Not exactly a great return on those ‘investments,’ was there?
The Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education publishes a ‘rigorous set of merit assessment criteria’ for government co-investment in the car manufacturing industry. Nowhere in the criteria is the phrase ‘value for money’ found. Other words not included anywhere on that list include ‘purchasers’, ‘taxpayers’, ‘return’ or ‘pay back.’
These cash handouts cannot be considered investments in any meaningful sense of the word.
Investments involve a sharing of the risk and reward between investors. Equity investors take a stake in the fortunes of the company, while debt providers take on the risk that their money won’t be repaid in exchange for a specified level of interest.
In all cases there is a direct link between the investment and the return. Contributing money with minimal obligations attached in the hope of generating ancillary benefits to society isn’t an investment. That fits the definition of charity or welfare much more closely.
Another requirement in this supposedly ‘rigorous merit assessment’ process is instructive. It requires that ‘the project will not occur … without government funding assistance,’ which is broken down into a couple of sub-categories, including that ‘government funding assistance will not crowd out private investment.’
But surely this means that government ‘co-investment’ should only occur when the market thinks the project is a bad investment? If not, there would be private funding available and the project would occur without government assistance.
With scant evidence of the benefits accruing from these ‘investments’, it is hard for the government to justify handing out hundreds of millions of dollars in corporate welfare to the select few.
Simon Cowan is a Research Fellow at The Centre for Independent Studies.
Home > Commentary > Opinion > Co-investment is corporate welfare
Co-investment is corporate welfare
Back in 2012, the federal and state governments also provided $275 million in ‘co-investment’ to Holden supposedly to secure manufacturing operations for 10 years. Yet just 18 months later, Holden is rumoured to be asking for another $200 million. Ford Australia was also given a $34 million ‘co-investment’ in 2012; but this year announced they would be closing their doors in 2016.
Not exactly a great return on those ‘investments,’ was there?
The Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education publishes a ‘rigorous set of merit assessment criteria’ for government co-investment in the car manufacturing industry. Nowhere in the criteria is the phrase ‘value for money’ found. Other words not included anywhere on that list include ‘purchasers’, ‘taxpayers’, ‘return’ or ‘pay back.’
These cash handouts cannot be considered investments in any meaningful sense of the word.
Investments involve a sharing of the risk and reward between investors. Equity investors take a stake in the fortunes of the company, while debt providers take on the risk that their money won’t be repaid in exchange for a specified level of interest.
In all cases there is a direct link between the investment and the return. Contributing money with minimal obligations attached in the hope of generating ancillary benefits to society isn’t an investment. That fits the definition of charity or welfare much more closely.
Another requirement in this supposedly ‘rigorous merit assessment’ process is instructive. It requires that ‘the project will not occur … without government funding assistance,’ which is broken down into a couple of sub-categories, including that ‘government funding assistance will not crowd out private investment.’
But surely this means that government ‘co-investment’ should only occur when the market thinks the project is a bad investment? If not, there would be private funding available and the project would occur without government assistance.
With scant evidence of the benefits accruing from these ‘investments’, it is hard for the government to justify handing out hundreds of millions of dollars in corporate welfare to the select few.
Simon Cowan is a Research Fellow at The Centre for Independent Studies.
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