On a related note: why should apple make 30% on every app sale? Because they can - Apple sets the rules there. You have a choice - don't submit an app to the apple store, or pay the tax.
Do you want to participate in a government grant? Get free money without dilution? To participate, you need to be in an incubator. The Government grant sets the rules here.
Somewhere in the rules likely there is a "type of incubator" restriction - otherwise, joining something like nreduce.com could theoretically be a loophole here. You also should check if there is other restrictions around what constitutes "being in an incubator" - I would think the grant wants to promote growth in companies that have been vetted by incubator contest (example: lots of people apply to techstars, few are accepted) vs someone just wanting free cash to chase an idea.
That said, if this incubator will back you cost free and act as the front for this contest, 3% may not be that bad. But the offer likely isn't conditional on winning - you will give 3% of your company away for the opportunity to submit your grant application.
I would never do that, but others may consider it a deal.