Art market - best of intentions, worst of realities

The Minister for Environment Protection, Heritage and the Arts, Peter Garrett launched a new Arts Policy on June 8, 2010, introducing a Resale Royalty Scheme for artists on secondary sales. This comes at a crucial time for the arts industry. On June 30 the government also considered the implementation of the Cooper Panel’s recommendation that would disallow the purchase of artwork from Self Managed Super Funds.

Minister Garrett has been trumpeting the Resale Royalty Scheme as a key plank in his new arts reform policy. I’m guessing that for many middle Australians, a resale royalty for artists “sounds like” it will help to support artists and their families. Sadly it won’t because it’s poorly designed. This scheme will adversely affect all artists even though much of the flag waving blurs this by focusing on the assistance it will purportedly provide to Indigenous artists. Provisions such as this will actually harm most Australian artists, and cripple their key support structures - the commercial gallery system.

This particular proposal emanates from the Myer Report in 2002 and more recently from the 2007 Senate report Indigenous Art - Securing the Future, which received many public submissions. The 2007 Senate Report researched various models and applications for the introduction of a Resale Royalty Scheme. Yet, informed opinion has always been divided on its merits and undecided whether it would achieve its aims. Indeed, there was a strong suspicion that the huge administrative costs would drown out any real benefits to artists. In fact, if one looks into the report, one can find that the Senate committee weighed up opinion and concluded against such a scheme. Hence, Recommendation 26 states:

The majority of the committee recommends that resale royalty scheme not be introduced because of the lack of benefits to most artists, and in particular Indigenous artists, and the lack of new evidence to the contrary.

Despite this recommendation, Minister Garrett went ahead with it when he announced the policy on June 8:

When the scheme commences a resale royalty of five per cent of the sale price will be payable to the artist on the second commercial sale of an artwork valued at $1,000 or more … They have formed an art trade advisory panel, and talked with artists, gallery owners, auction houses and dealers to set up systems to make the provision of information as straightforward as possible for artists and arts professionals.

It is time for artists, dealers, gallery owners and other arts professionals to get behind this important scheme for Australian visual artists by registering for the resale royalty with Copyright Agency Limited (CAL), Under the Resale Royalty Right for Visual Artists Act 2009, artists, buyers and sellers must provide information about the sale of artworks to ensure that the scheme can be delivered successfully for the sector.

Despite the grand rhetoric, there are significant problems with the Resale Royalty Scheme (RRS). I would suggest the following amendments to rectify the current design flaws of the new policy:

• currently at $1,000 the base threshold should be at least $3,000, perhaps $5,000;
• the secondary sale of an artwork should not include wholesale purchases from artists from their direct agencies, such as Indigenous community art centres;
• the RRS should not apply to artwork sold at a loss, or gifted under the Cultural Gifts program;
• the RRS should be capped at a reasonable amount (other countries suggest $25,000);
• galleries and agencies should be compensated for the administrative impost on their business; and
• the government should delay implementation of this scheme for 12 months until there has been further consultation with the sector they plan to work with. There also needs to be a process of intensive scrutiny to gauge whether the new policy will be effective in achieving its desired outcomes. Clearly this has not been the case to date - and it may prove counterproductive. The Minister also needs to explain why he has felt the need to go against the broad advice of the Senate committee submissions.

The RRS, in its current form, essentially rewards those who don’t really need it at the cost of the industry as a whole. Lacking any in-depth, practical examination of the diverse, cross section of small businesses supporting artists, it seems based on “prejudices” formed against the entire commercial art sector in the wake of incidents relating to the exploitation of Indigenous art. While commendably seeking to address rogue elements in the Indigenous arts sector, the Ministry for Environment Protection, Heritage and the Arts clearly doesn’t comprehend the repercussions for the sector as a whole.

Designed to provide equity, it may actually unwittingly exacerbate an un-level playing field by blurring lines (and in the process commercial confidence) between the wholesale, the primary and the secondary markets. An example of its bad design is that Auction House “buyers premiums” of 20 per cent are exempt from the scheme, yet Aboriginal artists who sell their newly made works to community art centres - which are then consigned to galleries - will be now deemed resales. This standard practice of distribution now becomes reclassified and directly hurts Indigenous artists.

This is a good example of how this scheme - which may have been dreamt up with the best of intentions - will in reality hamper the very people it is designed to support. Well over 80 per cent of the income derived will go to precious few artists and estates. Rich artists and estates that are earning well now will continue to do so. The majority of struggling, emerging and mid-career artists will receive very little additional support from these proposals.

Estimates suggest that based on current recommendations approximately 218 Aboriginal artists would receive average royalties of $1,800 and 21 per cent of these artists would receive less than $100.86. This is based on figures of all income from a resale royalty on secondary market sales of Indigenous art since 1994, which would have resulted in 86 per cent of the money going to the estates of seven dead artists. (In France 76 per cent of the money generated goes in to the estates of just six dead, white, male artists.)

The arts industry is relatively small. It consists of a plethora of micro-businesses; most of them will be severely compromised by the excessive administrative burden of this new scheme. They will struggle to maintain the middle ground between working artists and buyers. Ultimately, the policy will produce disincentives to buy art at a time when the market is already fragile.

Minister Garret has said: “It’s my expectation that a resale royalty scheme will provide Indigenous artists for the first time with the benefits of a market growth.” No one begrudges this, but it would be naïve to believe that this scheme will be able to place Indigenous artists on the same level as the estates of Fred Williams, Brett Whitley and Arthur Boyd. Distribution to Indigenous estates is always complex, but experience in the field suggests that most living Indigenous artists will be penalised for their desire to seek up front payments for artwork, which will continue regardless of this or any other scheme. We need a policy that begins with these realities, which are far different to France or most conventional art markets.

The public has been told that artists will be better off but they won’t. Minister Garrett continues to use Indigenous artists as a political trophy and proclaims that they, in particular, will thrive under his new policies. Indigenous artists have actually been not been served well by a cliché. In truth Indigenous artists are getting more opportunities in the art world than ever before.

The Cooper recommendations will make the art market even more precarious. Each year Self Managed Super Funds contribute about $100 million towards art purchases for living Australian artists. These are bona-fide sales undertaken to provide legitimate retirement investments. Many commercial galleries estimate that such sales equate to 15-25 per cent of their annual turnover. This private sector income has had a dramatic impact for all artists. A proposed ban on such investments, on top of the Resale Royalty Scheme would be catastrophic.

The best way for the government to resuscitate the arts industry is to create economic stimulus and incentives for individuals and companies to purchase art, but this policy is doing the exact opposite. One of its most key recommendations from Cooper is that within 10 years all artworks held in Self Managed Super Funds would have to be divested - presumably to be re-sold. This could mean a complete collapse of the art market as millions of dollars worth of artworks flood it - and then only to attract extra costs because of the Resale Royalty Scheme. The government is treating art as a political football and relegating art purchases to the position of a toxic asset.

The pitfalls of this policy are perhaps betrayed by Minister Garrett’s rhetoric, which is particularly cynical of the commercial sector, portraying some as parasites and most as profiteers. He speaks triumphantly of his passion and commitment to assist artists, as if he is alone on this score. Yet artists don’t operate in isolation. All artists, struggling or not, need a dependable industry structure to achieve their goals. In most cases, commercial galleries, art centres and agents provide such an infrastructure.

Certainly, Indigenous artists will not benefit solely from the drip fed royalty cheques at the expense of more sustainable art market structures. It may actually reinforce an unfortunate world view held by some Indigenous families that they live in the shadows, waiting for benefits from afar. Minister Garrett simply needs to assist the business of art. Taxes and royalties don’t do this but sadly this is only game in town he and his colleagues seem to truly understand.

July post script: a perfect storm

In July 2010 was announced that the Cooper Recommendations will be absorbed into Australia’s new laws for Self Managed Super Funds. Clearly, art has been diagnosed in these quarters as a non-“yield asset”. Regardless of its proven capacity to hold its value in the market, it doesn’t make the grade along with stocks and shares, bricks and mortar.

Meanwhile back in the Ministry for Environment Protection, Heritage and the Arts Minister Garrett is busy rolling out and steadfastly defending his Resale Royalty Scheme, which will introduce a 5 per cent levy on commercial galleries and collectors.

Imposing now a five-year moratorium to divest SMSFs of artworks will penalise thousands of retirees at least 5 per cent of the value of those artworks due to the resale royalties legislation.

What we have is a perfect storm! It is a crunch time for the arts industry.

Rather than simply moan and groan, I propose a solution by providing some simple, direct stimulus measures that can maintain the policies the Minister wishes to advocate, but at the same time stimulate the local visual arts sector:

Allow a 25-30 per cent tax rebate for all art collectors who purchase art by living Australian artists. A useful notional rate at which to start this scheme would be for purchases of artworks $3,000 and upwards.

This would create an incentive for the private sector to put some money back into the arts. While the new policy initiatives seek good outcomes in theory, they effectively remove funds as well as commercial incentives from the commercial visual arts sector. The government is thereby unwittingly undermining confidence in this sector - once again due to a lack of industry consultation.

If you agree with my solution to avert this perfect storm, please let me know! More importantly, let you local parliamentary representative know, let your local artists, your local galleries know, and your local newspaper know.

The arts industry needs straightforward incentives for people to buy art. We need the government to stop acting offhandedly as gatekeepers to an industry they barely understand, but desperately want to control.