The Productivity Commission has taken a swipe at the federal government’s $2 billion investment in SME financing, warning taxpayer intervention risks benefitting small business at the expense of public interest.
Nestled within a review of industry assistance policies released on Wednesday, the commission said it has identified a move towards “large scale project finance facilities”, singling out the Coalition’s Business Securitisation Fund.
The policy, unveiled late last year and passed through parliament back in April, commits $2 billion from the public purse to supporting non-bank lenders with capital so they can improve terms for SMEs.
The case for such a scheme was put forward by industry advocates, including small business ombudsman Kate Carnell, who argued poor access to finance was constricting small-business growth, particularly in the wake of the banking royal commission.
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However, the productivity commission said on Wednesday the “often stated rationale” for the fund — that it fills a ‘market gap’ — stood in contrast to its view of Australia’s lending landscape.
“In general, Australia has relatively deep and liquid financial markets,” the commission said, citing 2018 findings which concluded SME access to finance doesn’t appear to be a “major problem”.
“The risk of poorly justified and designed government finance vehicles is tangible,” the commission said.
“They have the potential to skew industry assistance to particular firms and projects with minimal public scrutiny until deals are done.
“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 commission has called for a review of the Business Securitisation Fund early in its operation to investigate whether the $2 billion investment “genuinely make Australians better off” rather than just benefitting small business.
Speaking to SmartCompany about the comments, Carnell says she agrees the fund should be appropriately scrutinised but argues there are real problems for the scheme to solve.
“In a perfect world they’re [the commission] is absolutely right; governments should not get involved in these areas where markets are working,” Carnell says.
“The problem is the market has failed.
“I’m surprised this statement of fact seems to have eluded the Productivity Commission, but even the Reserve Bank has come to the realisation that right now access to capital for small-to-medium businesses simply doesn’t exist.”
Responding to the Productivity Commission comments, Council of Small Business Organisations Australia (COSBOA) chief executive Peter Strong said times have changed.
“The Productivity Commission hasn’t addressed the reality, but rather the theory,” he tells SmartCompany.
Anecdotal reports on the SME experience obtaining finance from the major banks, who remain the largest small business lenders in Australia, have revealed increasingly risk-averse practices in recent years.
Founder of waste recycling business Waster, Aodhan MacCathmhaoil, has previously spoken to SmartCompany about his difficulty securing a loan to start his company.
When spruiking the fund ahead of the election earlier this year, Treasurer Josh Frydenberg also noted particular difficulty for SMEs without real estate or other collateral in securing finance.
The Reserve Bank has chimed in as well, saying last year about 20% of businesses were finding it difficult to access finance.
“The proportion of small businesses that perceive it to be relatively easy to access finance has declined recently,” the RBA said.
There has been broader concern about the use of taxpayer money in the scheme. Jana Matthews, chair of the University of South Australia’s Centre for Business Growth has previously called for a public interest test to ensure businesses who benefit have a plan for the money.
“We justify allowing people to borrow against their homes to start a company because it’s ‘their decision’ and ‘their money’. But if taxpayers’ money is being provided, the federal government has a duty of care to ensure every company has a comprehensive plan for growth before receiving funding,” Matthews wrote in The Conversation last December.