Commonwealth business grants: Not competitive, not transparent

Between 2018 and 2022 the Australian government awarded approximately $3 billion worth of business grants. 

At an average of $230,000 per grant, that’s a significant level of funding moving through a grants system that, unfortunately, hasn’t been characterised by high levels of transparency.

In fact, the Australian National Audit Office (ANAO) has criticised the administration of grants processes in Australia.

“While the ANAO’s performance and financial audits point to many areas of high quality and effectiveness within the public sector, there continues to be evidence that the sector’s approach to some core activities regularly falls short of expectations,” the Auditor General wrote in the ANAO Annual Report 2021-22.

A team of researchers at the IPA-Deakin SME Research Centre has now scrutinised the Australian government’s spending of tax dollars within the grant funding process to ascertain the effectiveness of the selection process.

Using data from the government’s online GrantConnect platform, the research team studied the profiles of businesses that have received such funding, the types of grants awarded, and the processes around applying, funding and reporting results.

Most importantly, the IPA-Deakin SME Research Centre team studied how open the application process is and the level of competition in the selection process.

Results have been reported in the paper Commonwealth Government Grants: 2018 to 2022, released last week.

It’s the first in a three-part series analysing the administration and effectiveness of government grants.

Grant processes are not competitive

“Taxpayers should have a vital interest in how the government allocates funds to different grant programs – not least because the allocation of grant funds can affect the level of funding available for other types of government services,” IPA Group CEO Andrew Conway wrote in the report.

Competition is vital to embedding efficiency and effectiveness in grant outcomes. Ideally, a grant is announced, various parties apply and those applications are analysed, with the funding going to the applicant demonstrating the greatest merit.

This is not the case within the Australian Commonwealth grants processes for business or community grants, the IPA-Deakin SME Research Centre’s analysis shows.

“A Joint Committee of Public Accounts and Audit inquiry into Commonwealth grants (2023) found that just 35% of grants across all categories were subject to competitive selection processes. By itself, this was considered cause for concern. Our research reveals much worse numbers for business grants awarded from 2018 to 2022, with fewer than 17% subjected to competition between applicants,” the report said.

“Business applicants that met stated eligibility criteria were awarded grants up to the limit of available funding – without any assessment of their merits relative to other applicants, nor reciprocal obligation to taxpayers.”

Some grants remain hidden

A total of 313 grants worth approximately $540 million, with a mean value of $1.7 million each, were awarded on an ad hoc basis by government ministers to small businesses.

Many of these ad hoc grants are hidden from public scrutiny, the paper reports.

These ministerial ad hoc grants “arguably entail the greatest potential, in theory, for misuse of public resources,” it says.

Open applications are not enough

While many grants are generally open to any applicants that meet the stated eligibility criteria, this openness may have too little impact to redeem Commonwealth grants administration.

Grants in the fields of business development, small business and industry innovation score particularly well for the openness of the application process, but the IPA-Deakin SME Research Centre team found that:

• Even an open grants process is rarely competitive.
• Grants to small businesses offered via ministerial discretion and other closed and non-competitive processes had higher values than grants that were subject to competitive processes.

“While open processes involve, by definition, at least some level of transparency, we found a broad and systemic lack of transparency across most Commonwealth grants programs — both open and closed,” the report said.

Government agencies that scored well on competitiveness and openness included the Great Barrier Reef Marine Park Authority and the National Emergency Management Agency.

Recommendations to improve Commonwealth grants administration

When Commonwealth grants distribute almost $1 billion annually with very little accountability or transparency, there is great potential for issues around integrity.

Just as importantly, the lack of visibility and non-competitive nature of the process likely acts to discourage businesses that could make great advances with the right level of funding.

The IPA-Deakin SME Research Centre paper included four recommendations:

1. Enhance transparency by publicly identifying all applicants for competitive grants, both successful and unsuccessful.
2. Full and prompt disclosure should be required when government ministers overrule public service or expert committee recommendations on awarding of grants.
3. Toughen disclosure requirements for ad hoc grants awarded by government ministers.
4. Require government agencies to provide more information about grants and their purposes.

Find out more – download Commonwealth Government Grants: 2018 to 2022.