Royalties scheme shines stark light on a divided landscape Lyn Williams at a retrospective of works by her husband, Fred Williams; 90 per cent of the value of all art resales stems from trade in works by luminaries such as Williams. AUSTRALIA'S complex resale royalty right for visual artists was launched in June 2010, with good intentions and much fanfare. It had an ambitious goal: to bring calibration and a degree of fairness to the art trade's frothy, speculative heights. No longer would painters, sculptors and their cousins in other fields of visual art be forced to look on in chagrin as their works were resold repeatedly at vast and rising profit: now they would receive a reasonable slice of each successive downstream sale. Like several of the other structural reforms enacted during the past decade in the nation's arts and culture business, the resale royalty was put forward as a measure that would be of great benefit to Aboriginal artists working in remote areas, and ease the economic plight they and their families faced. The royalty had been designed after careful consultation, and its trigger threshold deliberately set low: any artwork sold for more than $1000 would incur a royalty of 5 per cent, payable to the artist or their estate, on second or subsequent sale. A few dissenters cautioned that the scheme looked cumbersome in its compliance provisions and would drive investors from the market, but their voices were set aside: the resale royalty was an electoral commitment of the Labor government and a cherished project of idealistic arts minister Peter Garrett. Three years on, the bureaucrats who brought in the scheme find themselves bestriding the twitching corpse of the Aboriginal art market and conducting a public review of the royalty system's operation, its scope and its unforeseen consequences. Submissions have poured in: from artists and gallerists, culture industry lobbyists, academics and auctioneers. They describe the nightmare of reporting and oversight the scheme mandates, the police-like intrusions of its manager, the minuscule yields for artists of the mid-range. They outline its conceptual flaws and the story of its unfolding effects in the marketplace, but above all else they highlight the disquieting gulf in world view between those who make and sell art in Australia for profit and those paid by the state to speak on behalf of artists. This is a striking pattern. It is analysed in detail in a series of forensic postings on the Club Troppo blog by prominent landscape artist John R. Walker. He begins with the grand claims made for the scheme by the federal agency of Orwellian name that conceived it, the Office for the Arts. OFTA reports that in the first 35 months of its operation the scheme has covered 6801 resales that have generated more than $1.5 million in royalties for 650 artists; 68 per cent of these artists are indigenous and they have received 51 per cent of the royalties paid. The scheme, intended to be self-financing, has been funded to the tune of $2.25m and so far has yielded less than $130,000 in revenues to support its administrative costs. Well, modest but promising beginnings, you may think. Walker pulverises this idea, as do a range of other respondents, who reveal the impact of the scheme in the marketplace. Fully 90 per cent of the value of all art resales stems from trade in works by modern art's high luminaries, the likes of Brett Whiteley and Fred Williams. No details of the top 1.5 per cent of payments, involving 101 resales, have been broken out but the upscale auction house Deutscher and Hackett reports that its highest 13 resales alone generated more than $92,000 in royalties, all paid to non-indigenous artists. In fact the sketchy figures given by OFTA for indigenous art resales are quite misleading. Indigenous artists have tended to sell to their dealers or art centres upfront, so the first external sale is a "resale" for the purposes of the royalty, and this has become a feature that pushes up the price to the buyer. The phase-in date of the measure had its consequences, as did its dovetail with other new regulations. The royalty came in almost at the same time as the government introduced its drastic revisions to the rules governing private superannuation funds, sparking a slump in the indigenous art market that continues to this day. For the royalty is a levy on resales, but the superannuation changes damage the value of the resale trade. The effect on the secondary market has thus been brutal. The sequence of events and their results is telling. Until about mid-2010, Australian art sales were holding up well in the face of the global financial crisis; art has always been seen as a value refuge in hard economic times. Then, within a month, the two reforms came into force; the market dropped away. For some galleries the fall was 50 per cent; for individual artists the decline was often steeper. Sales of new work priced between $10,000 and $100,000 were particularly badly hit: at that price range the resale potential of a piece is a significant factor in the initial buy. The nature of the Australian art trade shifted and fell out of sync with the international art world's much rosier pattern of steadily improving results through the years from 2009. It is hard for professionals, who see the logic of the system so clearly, to believe the framers of these laws had no idea what their impact would prove to be. Above all else, the new regime changed the perceptions of art buyers, as Walker explains: "The biggest single negative of the scheme is the effect it has had on buyer confidence and buyer numbers. The scheme was imposed by law. Therefore the scheme in itself has created an anxiety that the government has something in principle against buying and selling art. A percentage of buyers have simply decided that it is all too hard and have left the field altogether. The effects of this anxiety have been particularly marked in indigenous art: drops of more than 50 per cent in prices for some blue-chip indigenous artists have occurred since the royalty's introduction. This sense that the royalty scheme is no vast boon to Aboriginal art is fleshed out in detailed remarks by the expert on remote indigenous economies, Jon Altman, who provides precise figures: "My overall impression is that the operations of the Resale Act may have financially benefited a number of indigenous artists, the 442 who have received an estimated $780,000 under the scheme, an average of $1800 each over the three years since June 2010. But this gain might have been offset or more than offset by loss of income both to these artists and several thousand others from declining primary sales if the (resale royalty scheme) has deepened the decline in the market or slowed its recovery; this is especially the case for fine art where there is a close relationship between primary and secondary sales. What is most shocking in Altman's presentation, though, is his disclosure that the entire second tranche of public funding to run the scheme, $700,000, was deemed an indigenous-specific expenditure and thus came from Aboriginal funding streams: a detail that will surprise art lovers who take the commonwealth's "Closing the Gap" rhetoric at face value. Those who cling to the belief that the royalty payments make a small difference in the Aboriginal bush may care to take an open-eyed stroll down the Todd Mall in Alice Springs. Discarded Copyright Agency Limited cheques can be spotted in the gutters and the rubbish bins: cheques for tiny sums, $5.20 cheques, thrown away because the beneficiaries can't be bothered to cash them or think they are, like most government money missives, actually fines or penalty notices. Among the submissions from the frontline of the Aboriginal art world describing the system and its administrative effects, the response to the review by Emily Rohr stands out. Rohr runs the successful and much-admired Short St Gallery in Broome. She founded and nurtured the Yulparija art movement in Bidyadanga community, and helped make its leading figures into stars of international art. Her broadside conveys the despair of those who gave their lives to building the desert art current, only to see it smashed to pieces by governmental regulation. "This scheme has had nothing but negative consequences for the art industry," she writes. In principle we supported the idea but the cumbersome and incompetent legislation has made it untenable and punishes the very people it was designed to support. Rohr argues that the scheme has no prospect of becoming self-sustaining and is corrupting the natural flow of the market in art sales; indeed, she attributes fully half the drop in the volume of the Aboriginal art market directly to the scheme's deadening effect. The upshot: "The government have created a perfect storm, or manufactured the perfect bay design to maximise the damage of a tsunami," Rohr says. They have contributed fundamentally to the destruction of the Australian art market; this scheme is one of the wrecking balls that has been thrown into the equation. Calls and messages of support flowed in from her less plain-spoken colleagues in the gallery world, many of whom felt constrained from overt gestures of opposition by their dependence on one or other source of public funds. Most leading art world figures who have made open submissions to the review share her standpoint and lament the scheme's perverse effects. Here's Michael Eather of Brisbane's Fire-Works indigenous art gallery: "Clearly the scheme is not working." Here's fine art dealer Lauraine Diggins on the system: "Ill thought through, rushed, confusing, legally fraught, harming to the arts industry." But there is a little subset of supporters, and they are distinguished by a shared perspective and position in the ecology of the trade. The CAL, the non-profit that runs reproduction licences in Australia for the government and operates the royalty scheme, decided to claim a public platform to comment: it thinks the scheme is "working well" but wants the power to go through all the financial records of art market buyers, sellers and professionals. Viscopy, the art image licensing group, which CAL manages, thinks much the same in its submission: "The scheme is providing artists with recognition of their ongoing rights in their art." This is also the view of John Oster, the publicly funded head of the notionally non-governmental, industry-run and (at present) voluntary indigenous art code. Another enthusiastic assessment comes from the National Association for the Visual Arts, a "peak body." Walker's investigations reveal NAVA's annual income is about $1.1m, $812,000 of which is cash from governments; it reports $165,757 as fees from members, but of this total $104,313 is currently reported as deferred, as has been the case for years. It is in truth a tiny cabal that claims to represent a multitude. The vista here is plain enough. The state arts establishment has set up and funded outposts of like-minded souls to give itself a facade of support. Walker is scathingly precise: "The government arts sector has developed such a widespread degree of circularity as to be like Narcissus and Echo, motionless and invisible; a hall of mirrors signifying nothing." This trend of echo is quite pervasive. One of the keenest supporters of the royalty scheme is the Arts Law Centre of Australia, the "national community legal centre for the arts," an Australia Council creation with a fondness for Aboriginal issues. It considers the royalty scheme has already proved "incredibly valuable to arts and crafts practitioners," a view for which it provides no specific evidence. Just in case its message failed to get through to OFTA, Arts Law contacted a range of art centres, which emailed identically worded single-sentence support notes to the review just before the response deadline expired. How did the art world of Australia reach this strange impasse, where leading artists and market-makers bewail the devastation of the creative realm they love while bureaucrats dance unknowingly on its grave? The resale royalty review has shone a stark light on the divided landscape. Submissions to the inquiry have closed. OFTA, keen to ensure a finding that the GFC, rather than its royalty system, drove a knife through the art scene, has hired a consultant to provide an expert view. And the nation's artists, gallerists and market makers wait for the verdict, in dismay and suspense.