The federal government’s $2 billion small-business fund creates risk for taxpayers, the Productivity Commission has warned in a new report.
In its latest review of industry assistance policies, the Productivity Commission noticed a move towards “large-scale project finance facilities”, singling out the Coalition’s $2 billion Australian Business Securitisation Fund (ABSF) and the Australian Business Growth Fund.
The securitisation fund is aimed at improving SME access to funds on competitive terms, while the growth fund is intended to facilitate up to $1 billion in capital investment to the small-business sector.
Numerous parties had advocated for the introduction of these funds, including the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, who has argued that SMEs are struggling to access finance to support trading activities and growth, especially after the year-long inquiry into misconduct in the financial services sector by commissioner Kenneth Hayne.
However, the Productivity Commission remains unconvinced of the broader benefit of these financing measures. It questioned the commonly used rationale for the funds – that it fills a “market gap” – saying that proponents should explain how the taxpayer-funded finance measure would serve the public interest.
The government has previously used financing vehicles that “do not show up in the annual budget bottom line” for special investments, the report states, such as the $29.5 billion in taxpayer funds used for the NBN roll-out.
“The risk of poorly justified and designed government finance vehicles is tangible. They have the potential to skew industry assistance to particular firms and projects with minimal public scrutiny until deals are done,” the commission’s Trade & Assistance Review report states.
“The onus should be on proponents of taxpayer-funded financing of commercial projects to demonstrate how they would serve the public interest.
“Even where there is an in-principle argument for government assistance, proponents should also explain why financing is the best policy option.”
The Productivity Commission said that given the “past failures” in government financing initiatives, a review should be conducted of the new measures early in their operation to “ensure that they genuinely make Australians better off and not merely benefit project proponents”.
Following its review into competition in the Australian financial system, the commission concluded that: “Access to debt finance is not a problem for most small businesses that apply for it. Nearly 90 per cent of SMEs that applied for debt finance in 2015-16 were successful.”
While this conclusion stands in contrast to the claims made by small-business advocates such as Ms Carnell, the commission did acknowledge areas of improvement in small-business lending. The issues it highlighted in its final report on financial sector competition include the predominant use of residential property as security, higher interest rates, restrictive contract terms and obscurity around fees.
The Productivity Commission therefore suggested measures such as standardising risk weightings, extending the comprehensive credit reporting regime to SMEs, and increasing data sharing to improve credit availability for small businesses.
[Related: ATO one of the largest lenders to SMEs: RBA]
Tas Bindi is the features editor for The Adviser magazine. She writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.
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