Resale royalties on Aussie art
Monday, 25 February 2008 Lynelle Johnson
PETER GARRETT has done well with royalties from his rock star days. Perhaps that’s why he's now creating a scheme to give visual artists an ongoing revenue stream which could take 4% when you resell your paintings.
Every trade in the art market already carries a lot of overheads. Auction houses usually take around 25% of the value of the sale, then there can be capital gains tax, as well as GST.
And that assumes you're making a profit or can even find a buyer. While one share in a listed company is generally much like another, one can't say the same for the work of even the most illustrious artists.
Art – more so than other investment classes – also depends on intangibles such as taste and fashion to maintain its value as an investment. But it does look rather better hanging on the wall.
Very little is publicly known about what the current government intends to do. But Peter Garrett is the new Minister for the Arts and his office has confirmed that they're pressing ahead with his election promise to see artists taking a slice of the art resale market, but won't provide details.
"The details of the parameters and operation of the Resale Royalty Scheme are still to be determined," says a spokesperson for Mr. Garrett.
Despite this assurance, there doesn't seem to be much left to be determined. The recent list released by the Department of Prime Minister and Cabinet (DPMC) detailing legislation to be introduced into parliament included an entry for a Resale Right for Visual Artists bill. The bill is intended to provide "resale royalties for visual artists when their original work is resold."
Legislation is only added to the DPMC list after a submission for it has been approved by Cabinet. So while the bill might not be complete yet, the broad structures certainly are.
Labor backbencher Bob McMullan was the Shadow Minister for the Arts in 2006 and he introduced a private members' bill into the parliament to create a resale rights scheme. His office has confirmed that they have been assured the proposed new bill will be very similar to the 2006 version.
There's also very little wiggling room in such a scheme as it is intended to work with similar schemes already operating in other countries – all of which means the 2006 bill is a good place to get a sense of what's coming.
The most striking thing about that document is how regressive it is from the investor’s point of view from where the scheme closely resembles a tax. Sales valued up to $100,000 will attract a 4% royalty which then scales down until the portion of the sale value over $1,000,000 attracts only a 0.25% royalty. The royalty is also intended to have a maximum value of $25,000.
The upshot of this is that it will be barely noticeable at the top end of the market and most keenly felt by smaller art investors.
Resale royalties are not an Australian innovation. Originally created in France under the name 'droite de suite' or 'right to follow' in the 1920s, it was adopted in 2006 across the European Union, including the UK and the auction houses of London. California also has a similar scheme and New Zealand is waiting to follow Australia's lead.
Ralph Hobbs from the Sydney gallery Art Equity is an exhibited artist himself, but thinks the scheme is a bad idea. "It will dampen the secondary art market," he says.
Ralph questioned the success of droite de suite in France where he said it had been of most value to artists like Picasso – who were already wildly successful. He said that in the Australian political debate it has mostly been put forward as a way to reward impoverished indigenous artists.
He's also worried that dampening the market and layering yet another cost onto the investor – who will not get 4% of their losses back from the artist should the investment depreciate – will only damage the primary art market from which artists get most of their income.
Ralph also questioned why the artist should be paid for secondary sales of their art work when no such royalties are paid for the on-sale of a CD or a book.
David Hulme has a different view. He is the Managing Director of the Banziger-Hulme, a fine art consultancy, and he thinks the art market will be just fine.
While he describes the proposed scheme as a "logistical nightmare," he also thinks the extra revenue for artists is important and that the regressive nature of the royalty structure could see the majority of the money going to the artists who need it most. But he also says "it is only a very small percentage of artists that will ever benefit from this scheme and these are the ones who already are perhaps considered well-off in the art world".
He also thinks that the art market is so buoyant right now that it will take something much bigger than a resale royalty scheme to bring it down.
"The emerging markets are taking off big time," says David, citing the entry of India, China and Dubai to the international art markets as driving explosive growth. "A downturn in the art market will be created by much more powerful forces and will begin in the auction rooms of Sothebys and Christies in New York and London before it trickles down to Australia."
There is a concern that droite de suite could see Australian art head offshore for sale. David says that the Swiss auction houses have done very well out of their country's decision to not follow the European lead.
But he also says Australia's geographic isolation and the cost of shipping art over long distances – and possibly having to ship it back if it doesn't sell – means there's little danger of our art market being driven out of the country.
Regardless of the merits or drawbacks, it seems very likely that resale royalties will be a reality in Australia within the year. If you were thinking about reselling a work then getting in before the Act is proclaimed could save you 4% of its value.
Where to find out more
The 2006 private member's bill to which the new law is expected to be very similar is on the parliamentary website at parlinfoweb.aph.gov.au
Bob McMullan's second reading speech for that bill is on his website at www.bobmcmullan.com
Peter Garrett's 2007 paper for the Indigenous Law Bulletin laying out the case for resale royalty rights is at www.austlii.edu.au
The forthcoming legislation list is available on the DPMC website at www.dpmc.gov.au
Reader comments
Subject: I'm having my say... Resale royalties on Aussie art
art can be commissioned ...so what reason is there to impose a tax ?
if an artist paints a canvas and on sells it ..how does that differ from an architect designing a home ,office building..will he also ask for 4% on the re-sale or even more since a whole family may have enjoyed living there or passersby had the pleasure of its design
this is a poorly thought out "royalty"..one would think that the whole idea is just based on creating the look of being seen to be doing something .
Valdis Rozenbergs
I'm having my say... Resale royalties on Aussie art
Lynelle Johnson - Peter Garrett definitely makes policy on the basis of 4% royalties.
He definitely entered Parliament to make money. I've read all his lyrics and everything points to this.
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