The latest beneficiary of the Government's provincial growth fund, Westland Milk Products, has been disarmingly frank in its gratitude for a $9.9 million loan to help it produce higher-value milk products.

"We could have financed this in other ways," said the company's chief financial officer, "but the terms we have been given from the PGF are more favourable. It's a longer-term loan than we can get from a bank, which is nice."

It might be nice but it is not economic. This country went through difficult times when it finally had to wean industries from dependence on government favours and discover which of them could be competitive in international trade.


Much of that previous dependence was sustained by rorts such as regional development grants for projects that might, or might not, be able to stand on their own feet. If they could, they should; if they could not, the economy would be stronger without them.

Basic economics said if they could not survive without taxpayers' support they were not only a waste of public money, they were tying up capital and other resources that would otherwise find a higher return.

Nevertheless, government grants to business survived as subsidies for research and development and dubious public "investment" in film productions and technology start-ups that supposedly would not happen without it. The present Government has added "regional development" to those excuses for corporate welfare.

Regional Development Minister Shane Jones was given $1 billion to splash around the countryside and he seems determined to do so whether it is needed or not. Westland Milk Products say they did not need it. They could have raised the capital from a bank at commercial rates.

Dairy is one of New Zealand's most successful industries. The Westland co-operative's last annual report disclosed its cash flow was below expectations, and its payments to farmers were not competitive. No wonder a competitor finds it "bizarre" the Government would support a flagging rival while those with strong balance sheets paid standard bank rates.

A former ANZ Bank chief economist, Cameron Bagrie, calls the Westland loan "a dangerous precedent". It certainly is. It tells all companies in the regions they need not be especially needy to get favours from the provincial growth fund.

The terms of Westland's loan have not been made public though the co-op says it would have been happy for them to be published. It says it was the Government's officials who ruled the terms confidential.

Jones defends his decision by vilifying "Aussie" banks who, he says, "don't give a fig about jobs saved, strengthened infrastructure and concentric circles of economic development". He needs to offer a better explanation than that, he can not favour every enterprise in the regions that would like loan capital below bank rates.

Those missing out are not just having to pay commercial rates, they are expected to pay the taxes he is giving to a favoured few. This is not a recipe for sustainable prosperity.