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No more "popularity contests and picking winners": Libs scrap Jay's signature schemes

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The Marshall Government has begun axing Labor programs it says are designed to “pick winners”, confirming it will abolish a “failed” $50 million jobs creation scheme that was only taken up by a single business since its introduction three years ago.

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The Unlocking Capital for Jobs Program, run by Jay Weatherill’s now-defunct Department for State Development, joins Labor’s signature ‘Fund My Neighbourhood’ program on the Liberal scrapheap, after Treasurer Rob Lucas confirmed the $20 million second round of the ‘direct democracy’ grants program had been axed.

“We announced prior to the election we wouldn’t continue with it, and we’ve implemented that decision,” he said, adding with a Monty Python-esque flourish: “It is no more – it’s a dead Fund My Neighbourhood scheme.”

“We don’t think popularity contests where people can vote online are the best way to spend $20 million of public money.”

The Unlocking Capital for Jobs Program, billed as a “first of its kind” scheme when it was introduced in 2015, was designed to “accelerate business growth to create jobs”. It allowed eligible small and medium businesses to seek partial government guarantees for loan applications between $500,000 and $10 million when they did not have adequate security or collateral.

The guarantee was limited to 20 per cent of the principal loan, with the Treasurer signing off on successful applications.

But as InDaily reported at the time, successful applicants would pay a high price for the taxpayer guarantee, with an additional “guarantee fee” of between 2 per cent per annum for the first three years of the guarantee, rising to 3 per cent for the subsequent two years, and 5 per cent beyond five years.

The program was announced in March 2015 by Premier Weatherill, when fashion design company Australian Fashion Labels was revealed as its inaugural participant, with a $3.5 million guarantee to borrow $19 million from the Bendigo and Adelaide Bank for its North Terrace expansion.

But three years on, the designer remains the scheme’s only taker, with last year’s budget papers showing the program’s budget exposure remained at $3.5 million of the allocated $50 million, unchanged since June 2015.

An Ernst and Young review of the scheme was commissioned in 2016 to consider why it was not being taken up.

The final report, which was never released publicly, describes the application process as “complex and unwieldy’’ and notes that Australian Fashion Labels probably didn’t meet the program’s criteria in the first place.

“We note that since the AFL application was principally for the development of speculative property and for new lending greater than $10 million, it was not necessarily a qualifying application under the strict terms of the program, though the forecast job creation outcomes are considered positive,” the report said.

It concluded market acceptance of the scheme was limited “due to a design that is perceived to minimise all risk to the Government” and a “complex and time-consuming application and documentation process without any certainty that a guarantee will be approved”.

The audit also noted the scheme “excludes a large number of eligible applicants, particularly at the smaller end of the SME scale in SA”.

However, rather than advocate its abolition, it recommended the Government “consider broadening the scope of the current program” to accommodate smaller SMEs.

But Lucas insists the program has been an “abysmal failure’’, saying scrapping it was “a relatively easy decision because it didn’t work”.

“[Ernst and Young] said you could change it and give it a go, but essentially we’ve said ‘let’s cut our losses, in a practical sense, and move on’,” he said.

He conceded the move would not reap any budget savings per se, but insisted the project had failed to deliver its objective – and that the new Government had different priorities.

“We’re establishing payroll tax cuts for small business, and that’s our priority,” he said.

“What we’re saying is that’s the way to approach things, rather than picking winners through various schemes.”

Lucas said there were “literally dozens” of similar schemes “in various government agencies”.

“When we had a hard look at some of them, they didn’t work,” he said.

He said his September budget would detail “a number of those [Labor] promises that won’t continue [because] we don’t believe they’ve worked”.

He said reducing the overall cost of doing business was the best way to help SMEs in SA, “rather than the endless pursuit of picking winners”.

Lucas is committed to finding savings measures to meet his stated pledge of delivering a 2018-19 budget surplus.

Business SA boss Nigel McBride had spruiked the Unlocking Capital for Jobs Program as a scheme that had worked well elsewhere in the world and “had a lot of promise”.

But he conceded “the acid test is – have people used it?”

“If it doesn’t compute, there’s no point in doing it,” he said.

“It’s certainly been given a hard run – we’re pushed it, the government’s pushed it… maybe there’s been a reluctance by some of the banks [but] I think the proof of the pudding is whether people have used it.

“It’s a good concept in principle, but either it works or it doesn’t, and if it doesn’t – let’s do something else.”

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