Clive’s leg-up boosts losers

IF we thought that Clive Palmer were joking about a gigantic slush fund — to be called the Australia Fund — being established to bail out struggling businesses, we could all have a good laugh. Surely he is a forceful supporter of the capitalist system, which involves firms collapsing as well as being created? There must be some kind of mistake.

Sadly, it would appear that consideration will be given to the harebrained idea through the appointment of a parliamentary joint select committee, which will report in June next year.

While most Coalition members would be aghast at the notion of taxpayer funds being used to prop up ailing companies, most of which will have no future, there are a few renegades, particularly among the Nationals.

One of the reasons Barnaby Joyce has been quick out of the blocks to support the idea is the smarting on his part, and other Nationals members, at the sensible rationalisation of drought assistance that was implemented by Labor. Bailing out marginal, drought-affected properties on an ongoing basis is neither equitable nor efficient.

Certainly, the government’s decisions in respect of SPC Ardmona and the automotive industry suggest that the prevailing philosophical position is to allow market forces to prevail and to resist the temptation to put public money on the line in the slim hope that companies can be rescued. Let’s hope this resolve remains firm.

Of course, there may be some surface appeal to using government loans, debt guarantees, cash grants and the like to assist firms hit by natural disasters and other problems. However, there are some damning (and expensive) examples of this sort of government intervention at the state level. Think WA Inc, the Victorian Economic Development Corporation and the collapse of the State Bank of South Australia.

The theme that holds these examples together is that the government, aka the taxpayer, should provide some sort of financial assistance to firms that would struggle to survive in the open market.

In South Australia, for instance, government debt guarantees were handed out to firms like free pens at a trade display on the idiotic assumption that they were essentially “free’’, thereby kick-starting activity that would not otherwise occur. It was only down the track that it became apparent how costly was this policy when the guarantees were called in by private debt providers.

The one thing that might be achieved by this parliamentary committee, apart from knocking the whole slush fund idea on the head, is an examination of our bankruptcy laws. The proposition is often put that if only we had US-style Chapter 11, provisions that give much less protection to creditors than our arrangements, firms could more easily trade out of difficult conditions.

In fact, the arguments are extremely technical; there have already been some important contributions to this debate in Australia made by various academics and lawyers. But the case for and against a Chapter 11 approach can usefully be revisited by the committee.

The mind boggles at the thought of such a fund being established. Who would administer the fund? Who would decide what natural disasters and other problems would qualify firms for financial assistance, courtesy of the taxpayer? Would cyclic variations in commodity prices fit the definition of “other problem’’? (This last question no doubt is one that has occurred to Clive.)

Slush Puppy or Palmer Piggy Bank — call it what you will. Whatever the name, it is a crazy idea that needs quickly to be shot down.