Prepare for more casualties from Weatherill Government’s cash splash

Government handouts to businesses creates an economy ruled by the sugar hit and creates a dangerous expectation, writes Michael McGuire.

Desperate people do desperate things. A cliche that is true for governments facing electoral oblivion as anyone else.

First a small history lesson. For much of the final term of the last Labor government, led by now West Australian Jay Weatherill, the unemployment rate was a serious problem.

Month after month, year after year, South Australia recorded the nation’s highest unemployment rate. In addition, in a hangover from the 2010 election when Mike Rann was premier, Labor had promised to create 100,000 new jobs by 2016.

It would ultimately fall short by just the 86,000 jobs. Not a stellar performance.

One of its methods to at least look like it was trying to create jobs was to create any number of investment-attraction and job-creation funds. Not especially unusual. Governments of all persuasions have been down that road.

The Liberals back in the 1990s threw money at Motorola, JP Morgan and EDS. None of that worked out well either.

But the scale of the spending in the last few years of the Weatherill government was breathtaking. Dollars rained down like confetti at a wedding. According to the current State Government, it amounted to 932 packages in 12 months at a cost of $421.9m in various grants and loans.

No doubt some of those companies will work out fine. Maybe even most of them, but it is still a tricky way to do the business of government. It creates an economy ruled by the sugar hit. It creates an expectation from business that the handout will always be there.

Of course, Weatherill was the premier who was not a “free-market guy’’. Maybe he wanted to nationalise all industry.

Former South Australian Premier Jay Weatherill before the last election. Picture. David Mariuz

Some of the casualties have already arrived. Australian Fashion Labels has gone bust owing $12m, of which $1.9m is owed to the taxpayer. AFL won a loan from Bendigo Bank on the back of a partial government guarantee for $3.5m.

Just before Christmas, two more joined them. A biotech called Somark, which was given a $1m grant to set up at Tonsley and bring 48 jobs and was eligible for a $4m loan, has gone. The owners of the Ellen Hotel in Port Pirie, which received a $1.75m loan, have called in the receivers. According to a report from the receivers, they still owe $1.66m.

More will follow undoubtedly and the state will be on the hook for these failures for years to come. To some extent, you can understand the desperation of the Weatherill government. But even so, some of its decisions still seem perverse.

It handed out $1m grants to multi-billion multinational companies such as Pernod Ricard and Treasury. It gave $11m to Beach Energy not to flee the state.

The current government says it has more or less moved away from this “picking winners’’ approach. It says it is focused on lowering business costs. Will this prove any better? This kind of trickle-down economics has a pretty ordinary record.

When business costs are lowered, whether through tax cuts or other means, owners tend to pocket the difference to fatten the bottom line.

Every government has its own pet ideological quirk. This government has privatised the train services with a murky contract that fails to provide any confidence the winners will be commuters.

You can make this claim because it’s pretty hard to find any examples where any privatised service has improved the lot of the people who use it.

Privatisation has been the default position of all governments for two decades. The lure of the lucre outweighing the needs of the populace.

Maybe then it’s the lot of state governments to try to fail. And then, following that, to fail to try. And so on.

The SA economy is heavily tilted towards the public sector. We are reliant on government money, state and federal, to prop us up.

The defence sector is the latest saviour for a struggling economy.

But with such few dollars to spare, it would be nice to know they are being spent with maximum efficiency and minimum wastage.