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Why is the Government picking losers?

January 16, 2014    Taxpayers' Union

Yesterday Science and Innovation Minister Steven Joyce announced research and development grants that are set to cost taxpayers $140million over three years. The Herald reports:

More than $140 million has been earmarked to go to 31 New Zealand tech companies in research and development grants.
Science and Innovation Minister Steven Joyce yesterday named companies awarded R&D growth grants from Callaghan Innovation, the Government's high-tech development body set up in 2012.
Recipients include NZX-listed companies Rakon, Scott Technology and a company owned by Wynyard Group.
The grants provide a 20 per cent contribution to a firm's annual R&D spend, capped at $5 million a year.
PTo qualify for the grants, businesses need to commit to spend at least $300,000 and 1.5 per cent of revenue on New Zealand research & development.
The grants last for three years and after two years of receiving funding, a firm can apply for a two-year extension to the assistance.

Note that one of recipients of the grants is high profile technology firm Rakon, which share price has been in free-fall since 2007 and just announced to the NZX that it is closing its UK plant.

This is precisely why the government shouldn’t be trying to pick winners with taxpayer cash.

This isn't picking a winner - it's throwing money at a firm thats share price has been tumbling for years.

In 2007 Rackon’s share price reached $5.70.  Today it is trading at less than 4 per cent of that, at around 19cents. In addition, the Shareholders Association, and others, have been vocal in criticising the governance of the company. See for example the NBR back in August "NZ Shareholders Association to vote against reelection of Rakon chair, director" and stuff.co.nz "Rakon profit warning 'disturbing'":

"The Rakon shareholders have sent a powerful message to the board that they are displeased with the performance of the company and are looking for either an improvement in performance or a change in the composition of the board,"

Later in August, this Businessdesk update "NZ Shareholders Association to agitate at Rakon AGM" said:

The New Zealand Shareholders Association will next month vote against the reappointment of Rakon chairman Bryan Mogridge and director Darren Robinson, citing erosion of shareholder wealth and the desire to improve company governance.

The Shareholders Association will use its proxies to vote against the reappointment of Mogridge at the Sept. 6 meeting in Auckland after shares in the maker of crystal oscillators lost half their value the past year, making it one the worst performers on the stock exchange.

If the government is going to give out taxpayer money, at least give it to companies that are succeeding, not failing.

This is a grant to a company that is shrinking rather than growing New Zealand exports.

Looks to us like a big win for Rakon shareholders, but not so much for the taxpayer...

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