Billions blown on government business grants: IPA

Research by the IPA-Deakin SME Research Centre data has revealed that more than 30 per cent of nearly $4.2 billion in Australian Commonwealth business grants awarded between 2018 and 2022 were unsuccessful.

The study suggests some financial grants have negatively impacted the economy and have had little to no influence on business performance, productivity, sales, turnover or efficiency.

Results highlighted in the study provide grounds for considerable concern according to IPA-Deakin SME Research Centre Director and Deakin University professor of accounting, Dr George Tanewski.

Tanewski said the results expose a worrying lack of rigour in the Australian government’s grant selection processes.

“The awarding of Commonwealth government grants has been a shrouded process for many years, despite the significant quantum of public money involved,” he said.

The study also suggested that grants are being used to sustain underperforming businesses, as 63 per cent of recipients were found to have low efficiency and productivity.

“[The fact] that many recipients have failed to convert grants into positive outcomes for their business or the broader economy is alarming, and largely due to a deeply flawed government selection process that is opaque and non-competitive,” Tanewski said.

Multiple research papers have aimed to improve the grant selection process, such as the ‘Efficacy of Australian Commonwealth Business Grants,’ the second chapter in a three-part series.

The concerning results reflect those from a similar study conducted in January 2024 which highlighted the business grant selection process “lacked openness and competitiveness.”

The extensive research and study into the federal government grant selection process aims to improve the selection criteria, allocation processes, key stakeholders and performance evaluation.

IPA CEO Andrew Conway said these studies must be conducted to ensure taxpayer money is being maximised.

“It’s important to evaluate the effects of business grants on business performance to gauge whether direct financial assistance from the Commonwealth Government is meeting their policy objectives because it’s more important than ever for these policies to hit their targets, and deliver ‘real’ value for money to Australian taxpayers,” he said.

Conway said that based on the findings of the study, the government should find a better way to utilise taxpayer money rather than wasting it on “grant culture”.

“Given the fact that almost 75 per cent of small businesses take home less than the average wage despite working more hours than the average employee, I think it safe to say there’s a better way for the Commonwealth Government to target business grants that will help thousands of Australians struggling with the cost-of-living crisis instead of wasting billions of taxpayer dollars on ‘grant culture’,” Conway said.

Other key findings:

From data analysis of the GrantConnect website, IPA academics found that grants had a stronger impact on employment in small businesses (3.63 per cent increase) compared to larger companies (2.96 per cent increase).

Grants were more beneficial for financial performance in large companies with a 4.96 per cent increase in return on assets, whereas SMEs and micro businesses experienced no impact.

Newly established businesses were not as positively impacted by grants as businesses that have been in operation for 10+ years which had an increased financial performance of 3.46 per cent, compared to start-ups (2.73 per cent), young (2.59 per cent) and mature (1.89 per cent) businesses.

Start-up businesses had the highest average employment from grants at 5.10 per cent and small business grants were associated with significant increases in full-time employment (8.15 per cent) for small and micro businesses.

Start-up and young businesses also experienced an increase in sales turnover at 5.84 per cent and 7.82 per cent.

The research also highlighted that business grants only improved full-time employment in recipient firms to 6.70 per cent when both open and competitive selection procedures were used.

IPA's key recommendations to improve the business grant program

To improve the effectiveness of the allocation of Australian business grant programs, the IPA suggests making the grant selection process merit-based, clearly identifying criteria and benchmarks for success and conducting impact evaluations on each grant program.

Grant recipients should have to publicly report on their success and consider the effects of providing multiple grants to single recipients rather than ‘subsidy-dependent’ businesses.

Conway said the government needs to allocate grants more effectively so that taxpayers can have trust in them.

“More than half of Australians don’t trust their government, and a lack of accountability is fuelling that fire. I mean, how are taxpayers supposed to put their faith into a system that hands out billions of dollars with little to no administrative oversight?”