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Art

 

In this article, I shall give an overview of the highly corrosive impact, which the Artist’s Resale Royalty (ARR) has had, and is having on Australia’s Art market. The impact of ARR also appears to have had an entirely adverse reaction on the UK’s Art Market; with trade in a large proportion of valuable secondary market Art works now, quite obviously, taking flight to places like New York, Switzerland and Miami. Below, as you will see, many reputable, and governmental sources have been cited. Due to the implementation of this scheme, we, in Australia, have sadly seen our indigenous Art sector virtually wither away right in front of our eyes since the ARR was introduced back in 2010. I’m an Australian Artist, I’m not being paid to write this, and the below is an honest appraisal of what we are facing here due to the ARR, and it is written based on my personal experience, and on factual publicly available information.

ARR Percentages vary depending on countries, but here in Australia, the rate stands at 5%. The impact of this apparently small -‘just 5%’- on the more average resale, are much greater than they might first seem to be. Because the ARR is 5% of the gross sale price, and not 5% of the net profit, the royalty payment often consumes 60% or more of the net profit on an eventual secondary market resale. For example, if an artwork is purchased for $100,000, and is resold for $120,000, and the costs of sale were say $10,000, then the royalty due @5% is $6000, which is 60% of the net $10,000 profit on that resale. And this calculation, like the ARR itself, makes no allowance for inflation. In reality, the royalty can actually be all or more of the net profit on the more average resale. As in most parts of the world, the ARR is also due on losses made. If that same artwork was eventually resold at a loss for say $90,000, then the royalty @ 5% is still due.

It gets stranger.

The primary market and the resale (secondary) markets are connected. Overall, art resale prices are, naturally, a factor in first sale purchase decisions. Here a quote from a submission to Government from the late William Wright AM:

"At meetings I have attended at the Australia Council [of the Arts] for the purpose of discussing this [the ARR] scheme it has been repeatedly asserted by administrators present (without a shred of market knowledge or substantiation) that the royalty will bring increased income into the art market: when it is apodictically clear to all who are actually part of the merchandising and marketing areas of the visual arts industry that it can only have the opposite effect.“

Depressed resale prices and declines in the total value of the Australian market for art, are bad for its artists, first sale prices, net value of sales, and for patrons of the arts, who do, after all, provide the supply of money into the market. As an artist who continually produces work, I’m pleased if a client or a gallery sees an increase in the value of works. Isn’t this what we might call a win-win situation? The best way by far of supporting artists’ careers in the long-term is to encourage a healthy buoyant free market, for all art.

Bill Wright’s words remain unarguably true. Adding a punitive, arbitrary requirement that collectors pay back 5% of the gross resale price, with no regard to profit and loss or even inflation, is severely handicapping the chances of artists selling their artwork in the first place. This has certainly been my experience since the introduction of ARR, as my accountant can attest.

A number of representative gallerists and accountants, who between them represent a large cross section of Australia's professional artists, in private and in general terms, all say that since 2010, the year of ARRs introduction, there has been an across the board decline of artist clients sales income, to the tune of between 35% and 50%, and in some cases, worse. Most advocates of the ARR scheme dismiss this decline in sales, as a consequence of the Global Financial Crisis, back in 2008.

It gets even stranger, really it does.

There is good evidence from other discretionary purchase markets, such as luxury cars, that the long-lasting decline in artists’ sales incomes is not simply the result of a general downturn in the market for discretionary goods. More tellingly, detailed research in the UK has shown that, in the past few years, the UK market for modern and contemporary art – the area directly impacted by ARR – has declined rapidly, whilst the modern and contemporary art market in the USA, for example, has grown, at a rate of about 25% year on year for the same period. The UK’s Art market for long dead artists unaffected by ARR, in comparison, has remained steady and shown modest growth. This would indicate that the segment of the UK’s Art market directly affected by its version of ARR, has, quite simply, fallen off a cliff. Think about it, when was the last time you heard of a £160m Picasso selling in the UK?

Quite obviously, this contraction in the UK Art Market has had a knock on effect concerning employment, and job creation in the UK’s Art Market, as it has here in Australia. In fact, the whole basis for the EU's ARR Directive (1996) was exactly that the presence of ARR in some EU member markets and not in others was causing art sales to relocate to non-ARR markets within the European single market. Therefore, if sales are not being diverted to 'non ARR’ markets by the ARR, then the EU's primary justification for imposing ARR on the UK market, and by implication the justification for their campaign to impose ARR on the rest of the world is quite simply not valid.

We all understand that ARR is 'good intentioned‘, but, the fact of the matter is, in its present form, it’s a bad scheme, which in Australia, will hopefully not last for much longer.

Back to Oz, and Superannuation Funds.

The concomitant introduction of the ARR in Australia along with the changes to art in Self Managed Superannuation Funds (SMSF) rules has had a particularly savage impact upon the sales and reputations of indigenous art and artists. In terms of localized artistic economies, in 2010 in the major tourist town of Broome, there were ten businesses dealing in indigenous art. Now, in 2015, there is only one remaining, and the Short St. Gallery can be quoted as saying “we have gone from investing $2million per annum in indigenous art, to just $200,000 per annum.” Anecdotally, commercial art galleries in Western Australia are heading towards virtual extinction.

Experience has shown artists, myself included, that since June 2010 sales of artworks valued above $30,000 have become rarer when compared to sales in the years prior to the introduction of ARR. Speaking with a number of patrons and collectors, the response is always the same when discussing ARR. That being that it is a discouragement to buying art in the primary market, and in particular the more costly works. In one conversation, a close patron said, “what if my wife needed emergency treatment and I needed to cash that artwork in, what are re-sales like?” This is not an insignificant consideration when considering a purchase. What would you say?

Some of you may know of the artist Ben Quilty? He recently had a solo exhibition in London at the Saatchi Gallery, and is an Archibald Prize winner here in Australia, a bit of an Ozzy icon, if you like. In his submission to the ongoing ARR Post implementation Review, he stated:

“I also voiced my concern to The National Association for the Visual Arts that a Resale Royalty Scheme would risk support for the emerging sector of the Visual Arts. I had spoken to some very serious collectors (including one of this country’s biggest collectors of Indigenous Art - who I have asked to submit to this review) and many showed concern that their purchase of an emerging artist’s work could lead to a resale royalty, on top of the resale commission of galleries and auction houses at the point of resale.”

The ARR was presented to the Australian public as primarily a scheme aimed to benefit Australia's indigenous artists. The effects of the ARR have, in practice, turned out to be diametrically opposed to this aim.

BenQuiltyBen Quilty said the resale royalty scheme was benefiting "rich white artists" at the expense of others.Image Courtesy – Rachel Kara, Sydney Morning Herald

LET’S CRUNCH SOME NUMBERS

The Copyright Agency Limited (CAL) is the appointed manager of the Australian ARR scheme. Figures published by CAL on their website show that 60% of the total value of the ARR royalty money paid to date, has gone to non-indigenous artists and their estates. The total value of indigenous art sold at auction in 2014 was $5.6 million, an 80% drop in sales since 2007, (source john Furphy's Australian auction sales digest) and this decline in indigenous art sales in general, really took off after the implementation of ARR, in 2010.

The Office of the Register of Indigenous Corporations (ORIC) 2012 report, At the Heart of Art: A snapshot of Aboriginal and Torres Strait Islander corporations in the visual arts sector, has a graph of the indigenous arts centers average sales income that covers the period prior to and after the introduction of the ARR scheme and the art in superannuation funds rules. This chart shows clearly that the Global Financial Crisis did cause a drop in sales; however, the chart reveals that in the following year sales leveled out and showed signs of re-growth. In the year 2010-11, the year of ARR introduction, sales again contracted.

 

JohnGraph

Given enough time, the proportion of ARR value going to indigenous artists and their estates must decline to about 10% (or less) of the total value of the royalty payments made. If indigenous art re-sales are 5% of the total value of the affected market, then the royalty payments to indigenous artists will be 5% of the total value of royalties paid. The combined value of the top three largest individual royalty payments to date is $147,000, which is $31,000 more than the total value of all of the bottom 2,000 individual royalty payments combined, as given by the Department of the Arts in answers to Questions on Notice by Senator Gary Humphries in February 2013. None of the 3 recipients of those 3 largest individual royalty payments were indigenous and only one of them was alive, at the time of payment.

A number of more recent art economic studies of the indigenous art sector by Acker and Woodhead show a sector in continuing deep trouble. They report that many of the arts centers are, on current trends, heading for insolvency, and that income from sales is stagnant. For more than half of these centers, government funding now, significantly, represents more than 50% of their total income.

Professor Jon Altman has also raised the serious issue that a significant proportion of the public funding to the operating costs of the ARR scheme has come from indigenous specific funds within the Department of the Arts, even though the scheme is clearly not an indigenous specific program. Altman reports that the highly respected Australian Indigenous artist John Mawandjul, has gone from being an internationally celebrated and revered income-generating artist, to retraining as a tyre repairman.

He goes on to report that most of the great ‘bark’ painters at Maningrida, have simply stopped producing art.

A quote below:

“Last month he told me he had given up painting, I watched him aged over 60 going to the Ye Ya workshop in Maningrida looking for a ‘real job’ as a tyre repairer, as required by the new Remote Jobs and Community Program if one is not to be breached and left destitute.”

OZZYEminent Indigenous Australian Artist, John MawandjulImage Courtesy: Art Gallery New South Wales

Essentially, resale royalties are a restraint of trade and must, and have, resulted in reduced prices and reduced overall value of any market, which they apply to. Buying art that is affected by resale royalties is, of course, not compulsory. However, being part of the ARR scheme for contemporary artists in Australia is compulsory.

A percentage of buyers in Australia have shifted to other forms of art and / or investments that are not penalized by a royalty that does not allow for costs, losses or inflation. ARR is undoubtedly a restriction on artists’ rights of free contract, which has raised real, and harmful market distortions and substitution issues for many of the artists affected by the scheme. Why can’t we sell our art without the ARR provision, for a better first sale price?

The option of opting in to the scheme is simply not available. How can it be that we, as artists, have no choice in the matter, and that we have mandatorily been roped in as part of this corrosive scheme? Opting out, on a limited case-by-case basis, is of course an available option, but hang on a minute, isn’t that the wrong way round? I happen to like my rights, and I am perfectly capable of making a decision on whether I wish to opt in to a scheme available to visual artists. With this particular scheme it should also be noted, that the vast majority of artists do not have re-sales of any consequence at all, especially while we are alive.

There is no way that a restriction of artists’ rights of free contract could be construed as an inalienable i.e. compulsory individual economic right of artists. All restraints of trade must reduce, and in the case of the Australian Art market, seriously damage both prices, and the market.

I have discussed this matter at length with Professor Paul Frijters, one of Australia’s more eminent economists at the University of Queensland. In his opinion, and in a perfect frictionless market, the royalty would simply reduce the value of the market  "by 5% for every time that an artwork gets sold: if buyers expect art to get resold 4 times in their life, the prices would drop some 20%."

He went on to say, "the added costs also directly depress prices. The royalty is more likely to reduce prices by factors of up to 50%, depending on the frequency of trading in the artworks affected." As it happens, frequency of trading in the artworks affected, was much higher in the Indigenous art sector than other areas of Australia’s artistic offerings.

IN CONCLUSION

Both the lived experience and the ‘101’ basic economics of ARR in its current form, show it to be a very bad idea if you are trying to make and sell art for living, or if you are interested in supporting art and the artists who create. Additional layers of collective bureaucracy, and bigger Government, have never worked in favour of business.

Buying upfront, and then on-selling of indigenous art was the principal business model for indigenous art sales prior to the introduction of ARR. Since then, indigenous sales, prices and volumes have plummeted by at least 50%, with some estimating a more realistic number being in the region of 80%.

In addition, there is overwhelming evidence, that the scheme supports the larger already established artists, with an emerging marketplace seeing little, or no benefit to the scheme. How can it benefit or add value? Emerging artists simply don’t have re-sales.

The Australian ARR scheme is currently the subject of a Post Implementation Review (PIR). Hopefully this 'good intentioned‘ but bad in reality scheme, will not last much longer.

 

About the Author

John R Walker

John R Walker

John R Walker has been exhibiting for more than 30 years. His artworks can be found in many of Australia's major public and private collections including: the ACT Legislative Assembly, Art Gallery of...
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