Good intentions not enough for good policy

Science and Innovation Minister, Steven Joyce hit back at us regarding our recent criticism of the Government's corporate welfare efforts, such as the millions of taxpayer dollars going into ‘company incubators’. The NBR reported on Thursday:

Eight new company incubators are to receive funding under Callaghan Innovation’s incubator support programme.

Callaghan, the government funded innovation hub, has included three new technology-focused incubators and five founder-focused incubators in its latest funding round. 

The three new tech-focused incubators are PowerHouse, Astrolab and WNT Ventures, and will be eligible for up to $450,000 worth in repayable government grants, with the incubator companies matching funding at a one to three ratio of up to $150,000.

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The tech-focused incubators will focus on commercialising Intellectual property, primarily sourced from publicly funded research organisations, like universities and Crown Research Institutes.

The repayable grants are a trial programme, which was allocated $31.3 million over four years in the 2014 Budget.

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However, the Taxpayer’s Union executive director Jordan Williams has described the government grants as an “example of politicians thinking they know more than IT entrepreneurs.

On Friday, Mr Joyce went the offensive:

Joyce slams Taxpayers’ Union attack

Science and Innovation Minister Steven Joyce has slammed the Taxpayers’ Union’s attack on the minister as a “fundamental misunderstanding” by its executive director Jordan Williams.

Mr Williams described the $31 million worth of grants to eight new company incubators - under Callaghan Innovation’s incubator support programme - as an example of politicians thinking they know more than IT entrepreneurs.

Mr Joyce says Mr William’s comments show a fundamental misunderstanding of both technology-based start-up companies and the intention of the government’s policy.

NBR ONLINE asked the Minister how Callaghan Innovation justifies a 3:1 funding ratio, with the taxpayer taking on 75% of the risk?

Mr Joyce replied that the incubators would be funding early stage companies that have arisen from public research organisations, where generally the taxpayer has paid up to 100% of the costs of the research.

“The projects that are funded via the incubator are still very early stage, with significant technical risk. The aim of the programme is to get private sector expertise in very early so that the projects have a greater chance of success. 

We have called on Mr Joyce to explain what the ‘fundamental misunderstanding’ is. Instead of rebutting our criticisms of the policy, Mr Joyce has just reiterated what the ‘intentions’ are. Unfortunately even the worst policies have the best of intentions.

We hoped to be proven wrong on our fear that the grants are interest free. Instead the Minister confirms the worst, with 40% of the grants expected to be written off and the rest not even adjusted for inflation.

In February the world's third largest software maker, SAP, which last year posted a profit of €1.80 billion, received a similar ‘growth grant'.

For us, the key question are:

• Where is the evidence that the return taxpayers get from the successful start-ups compensate for the money lost on the half that fail?
• Who is ensuring that the decisions made by politicians on what businesses to back are better than what would have happened had the money stayed in taxpayers' pockets?