Government Arts Subsidies and Other Support

Government Arts Subsidies

Government subsidies are conceived as addressing situations where an activity considered of public value is not supported financially by the market and for its existence, or its profitability, requires non-market support, in this case, from the government.

Two Types of Subsidy

It is useful to think of subsidies as of two types:

1. Cultural subsidy
2. Industry assistance

Cultural subsidy is given by governments to sustain activities which cannot survive from the market alone and are considered to be of special cultural value. A common reason for lack of financial viability in cultural activities is their high labour costs; while they may participate in the technological efficiencies of the age, these may not replace labour costs as they do in other industries. So, a symphony orchestra still requires a large number of players and its quality, upon which box office depends, probably requires their full time employment. No matter how many times it fills a concert hall, it is virtually impossible for it to meet costs from box office alone. A small experimental music group will appeal to only a small audience that again does not provide sufficient box office income. Furthermore, the gap between industries that can benefit from continuing productivity gains and many of the arts is widening all the time.

Provision of subsidy is unlikely to make such ventures profitable. While it is fair that they should be expected to be expertly and efficiently managed, a successful outcome of this subsidy is the production of the music to a high level of excellence. A consequence is that the groups may have thereby justified further subsidy.

It seems appropriate to support the existence of, say, a successful string quartet or orchestra if we believe it has a special cultural value. These values are, at base, personal and subjective. ‘I don’t like orchestral music, so why should my taxes subsidise it?’ Nevertheless, we can take a broader view. We could say, yes, Australia should have symphony orchestras even though symphony music is not my personal preference, just as Australia should have Olympic swimmers although I don’t swim, libraries although I buy my own books, public trains although there is no station near me. Ditto for military bands and so on.

Industry assistance is subsidy given temporarily to assist a musical venture to achieve profitability. Issues of cultural value may or may not be considered relevant. The desired outcome is that the venture is profitable. Such success means that further subsidy is not justified. Conversely, failure to achieve profitability according to plan also may mean that further subsidy is not justified!

Successful rock groups can become very wealthy. Successful string quartets probably cannot survive from performance-related income.

Grants to locally successful rock groups to promote themselves onto the international market would be a suitable way to give industry assistance. Success may require spending more money than they may be able to accumulate at home. Industry assistance involves some speculation and risk taking by the government but it should be noted that success in the international sphere brings benefits that go beyond the financial rewards to the group in question.

Emerging artists. Governments also have a practice of supporting ’emerging artists’, whether they are young string quartets or young hip hop artists. The objective generally has something to do with helping them enter the profession successfully and the expectations might be that they achieve greater artistic excellence or greater financial viability or both, but certainly higher profile.

Subsidy Objectives at the Different Levels of Government

Cultural subsidies are provided by federal, state and local governments but the nature of the activities supported varies across the three levels. Generally speaking, the policies match the national, state or local constituencies.

Local government provides physical facilities, often with financial support from state governments. Just as playing fields and libraries have traditionally been provided by local government, more recently so have performing arts centres. Local government also gives modest support to local musical initiatives, often including amateur activities. Many local governments have cultural officers with broad if under-funded responsibilities for cultural development initiatives. Sometimes these positions are organised on a regional level, taking in more than one local government area. They might be employed by the non-profit state or regional arts council with local government subsidy. Local governments may also (or alternatively) employ events managers, who could have responsibility for programming, for instance, the local government-owned arts complexes, or local festivals.

State government funding to the arts has grown where federal funding has been static, and generally the states fund a broad range of professional activity. They have major responsibility for performing organisations that are conceived as having state-wide significance, but also work into the local level much more than does federal funding. They may support amateur activities. State government provides major metro facilities such as performing arts centres and supports local governments in building regional facilities.

The Commonwealth gives total or majority support to music organisations regarded as national: Opera Australia, Australian National Academy of Music – and to the professional symphony orchestras nearly all of which had national origins in the ABC or the national opera and ballet companies. It gives substantial secondary support to the state opera companies. It supports national touring and festivals agencies and is a main source of continuing funding for composers and for a number of music ensembles. The Commonwealth does not take responsibility for funding physical facilities in the performing arts.

How Subsidy Decisions Are Organised at Different Levels of Government

The Commonwealth passes much of its music funding through the Australia Council, a ‘statutory arm’s-length authority’. ‘Arm’s-length’ means that the Arts Minister may not instruct the Council to fund or not to fund any particular entity or project. The intention is to remove funding decisions from political influence. The government may, however, instruct the Council in arts policy. There are some funding decisions made in the Department for the Arts and these can be directed by the Minister.

The state funding authorities are under the direct control of the Minister. At both national and state levels, the assessments of applications are carried out by advisory panels of artists and experts. In the Australia Council the outcomes are funding decisions, at state level and within the Federal Arts Department, the outcomes are advice to the Minister, who may reject it. There have been numerous instances of this happening, some for plainly political reasons.

At local government level, which accounts for an estimated one-sixth of total arts funding, funding is determined by council members with advice and support from council officers.

The structure of the Australia Council is largely art-form based. There are ‘Boards’ for music, theatre, dance, literature etc. The state ministries have largely departed this type of structure so that whereas funding categories in the past might have been music composition or recording, now they might be, as in Victoria, ‘Community Partnerships’ or ‘Artists in Schools’ and objectives tend not to be art form based. In some cases at least, the level of musical expertise found in Arts Department employees has fallen away.

Funding Cooperation Between Commonwealth and State Authorities

There are those who in the interests of tidiness and efficiency would like Commonwealth and state funding authorities to agree on whether or not to fund an activity, especially ongoing activities or organisations. Among their complaints are that arts organisations have to deal with multiple funding application requirements of multiple funding bodies, and that this is unnecessarily burdensome. ([See the recommendations from the Commonwealth’s 2020 Summit.] This is a burden!? If there were only one funding body, they would have the opposite complaint.) The opposing arguments are that these decisions depend at least in part on subjective value judgements and that it is therefore better to have alternative sources for funding; also that it is appropriate that state and Federal funding objectives should be different and so there should not be a requirement that an activity satisfies both in order to get support.

Arts Programs Managed Directly by the Commonwealth Department for the Arts

Due to politicians’ distaste for the Australia Council and/or statutory authorities in general and/or actual failures by the Australia Council and/or the historical jockeying for position between the Department and the Australia Council, a number of important arts subsidy programs are directly administered by the Department. These include Touring Australia, Festivals Australia, Australian National Academy of Music.

As an election promise, Peter Garrett pledged that the Rudd Government would bring these programs under the auspices of the Australia Council. There, presumably, they would participate in statutory independence and the arm’s length principle, and there would be administrative efficiencies and policy consistency across Federal arts funding activity. However, before taking this step, there is a review of the Australia Council. (Was there ever such a reviewed and restructured organisation? It should have a permanent staff to review the latest review.) The terms of this review do not seem to be public and to our knowledge, on this occasion, there is no industry consultation. On recent past evidence, this may be imprudent.

Links to arts funding bodies and Ministers at federal and state levels can be found on the MCA website.¹

Possible Issues

Insufficient Subsidies

Trends. See elsewhere on the Knowledge Base for factual information about trends in government funding. National funding has increased for orchestras and opera but small to medium activities have suffered. Some states have taken big steps forward but NSW seems to be disintegrating administratively with funds to approved grantees not provided until well into the year and application deadlines for 2009 not even set. Usually the applications are due around now.

Needs. How much is enough? How long is a piece of string? European subsidies makes Australian subsidies look paltry. US subsidies make Australia look well off (though in the US, the private sector makes up the difference and more). What activity, what quality do we want that we don’t have?

Subsidies Out of Fashion

If any music is not popular enough to survive from the market alone, then clearly we don’t need it, say the economic rationalists. (Hans Hoegh-Guldberg points out that economic rationalist approach deals only in the short-term. “In its pure form will not accept even economic arguments covering a longer-term future, one excuse being that it can’t be measured statistically.”) The counter-argument is that the consequence is that there are some forms of music that we simply will not have any longer in Australia. If there is no subsidy for orchestras, we will not have orchestras, and if we do not have orchestras, the economic infrastructure for classical music disappears and we will not have all the smaller forms of classical music either. This applies to a lesser extent for some other forms of music.

Some arts bureaucrats speak disparagingly of subsidies. This is deeply ironic.

Quality of Funding Decisions

The quality and direction of funding decisions depends upon the nature and quality of Ministerial appointments to funding advisory committees or decision-making boards. There are many instances where Ministers ignore good advice and appoint people who are not the peers of those they will assess.

Consolidating Federal Arts Funding under the Australia Council

What are the pros and cons? There are always criticisms of Australia Council processes but as noted elsewhere, perhaps we know that because the critics do not expect to be victimised by the Australia Council for airing their opinions (or perhaps are disgruntled because not funded and figure they have nothing to lose). There certainly are criticisms of the Department’s processes but they seem not to be made public. We do know that decisions need not be made by peer review nor benefit from the arm’s length principle.

Music Bureaucrats without Adequate Musical Knowledge

When state authorities were structured by art form, there were bureaucrats with art form expertise. Now, those in charge of music subsidies may have strong opinions but only the most superficial knowledge of music. At both the state level and in the Federal Department, the bureaucrats have a lot of influence. In principle, not a good combination.

Accountability

Along with the rest of the public service, arts agencies are afflicted with creeping accountability syndrome. Subsidised organisations are carried along with this and complain that they are increasingly distracted from their real vocations and objectives by burdensome application and reporting requirements. Some believe that funding is skewed towards the good application writers.

Viability

Phrases like “permanently on the public teat” litter funding discussions. Funding bodies fund what they hope are the best artists and arts organisations this year, and next year they are still the best, and the year after that. The best are funded and they are the same people. The funding bodies begin to feel trapped, and bored. They would like a bit of fun, too, supporting new things. Other artists can’t get funding and perceive their way blocked by permanent funding to people who have had it for years. There are invocations or requirements on the continually funded, and everyone else, to achieve financial viability, but of course, most of these activities can only become less unviable and the invocations are more political than expert.

(So we would like to avoid continuing funding. On the other hand, we decry the insufficiency and instability of the music infrastructure.)

If the case for subsidy is accepted, there seems no way out of this dilemma. If more of the best artists are funded, then they too, new this year, will be older and possibly still funded in five or ten years.

The only apparent solution is to more or less arbitrarily divide the available funds into those used for ongoing support and those used for one-off projects. This is in effect what happens.

Classical Music Gets Most of the Music Subsidies

Definitely guilty, as charged. Some resent it. Let me briefly make the case for the defence.

The viability of the classical music sector hinges on the existence of the orchestras. As already noted, their labour costs are too high to be paid for from box office and are proportionately way higher than for any other musical genres (except opera, of course). Part of the reason for this is that the musicians are industrially organised and get (modest) salaries. If we halved the musicians’ salaries, we might solve the subsidy problem, but who wants that? And who wants to study for 20 years to be paid half the average wage? And why would you not then go overseas to where there is a good living? That takes us back to the 1940s.

In Australia, classical music is way less subsidised than in Europe, where 80-90% of costs might be covered by subsidy (and artistic risk is supported). Here it might be only say 35%. The imbalance in music funding is not because classical music gets too much, but everything else gets too little. It should be noted that there is a similar imbalance in dance funding for similar reasons (large companies vs. the rest) and in the visual arts (not noticed because the comparisons are usually made in Australia Council funding and all the big galleries are state-funded).

Of course, there are those who simply would not fund classical music. That is a personal value judgement and another discussion altogether. I would say, however, that at the least it is bad strategy to reinforce such divisions within the sector. We can advocate for our preferences without bringing others down.

Industry Assistance for Exports

There seems to be a strong case for increased industry assistance especially in building exports. This might be continuing assistance or if successful, industry in due course might be able to collaboratively fund an effective presence at MIDEM and other trade shows and in general manage an Australian promotion. It is noted that state governments are independently supporting international marketing initiatives by/for their own artists and that a combined approach might be more effective. This, incidentally, is a situation where cooperation is of more value than competition. (See summit paper on employment conditions.²)

An Arts Future Fund

Currency House’s Platform Papers series recently published a monograph titled A Sustainable Arts Sector. What Does It Take?.³ This proposed an Arts Future Fund which would provide a base for sustaining government funding to the arts. The concept is repeated by the government’s 2020 summit. The idea has obvious merits but there should be an examination of the possible ramifications, perhaps through a scenario planning approach. For instance, is there a risk that government assigns total responsibility for arts support to the income from the Future Fund and opts out of any further consideration of situation or need?

The Rudd summit proposes that the Future Fund, or “national endowment fund for the arts”, should seek private funds as well as a government endowment. The possible consequences: private funds are allocated according to policies of this endowment or perhaps the Australia Council, which may be more thoughtful or knowledgeable or willing to back artistic risk than the are the private donors; on the other hand, arts organisations will have to compete with the government for private donations. It seems unlikely that the government can win such a competition – who wants to donate to the government? –unless it gives itself an advantage by offering greater tax advantages for donations to itself than to arts organisations. Would that be a popular move?

Other Ideas from the Government’s 2020 Summit

• Government assumes responsibility for liability insurance [for whom?].
• A HECS-type scheme for young and emerging artists and entrepreneurs.
• Governments establish a register of surplus government space and make it available to artists.

Other Forms of Government Support

Tax Deductible Donations

Government supports the non-profit area of the music sector through providing for tax-deductibility on donations made by private individuals or businesses. Since this means tax income foregone for the government, it is a form of indirect subsidy. Donations can be in the form of money, the value of goods (with certain curious restrictions), and services. Donations by trusts are not tax-deductible since trusts are already tax exempt.

Sponsorships are donations by businesses that potentially are tax-deductible but actually are counted as business expenses chalked up to the marketing budget. Since the costs are business expenses they are deducted from (taxable) profit. The contra is some form of promotion of the business by the sponsored organisation. Sponsorships therefore do not count as indirect government support.

The Australian Business Arts Foundation (ABAF) is funded by the Commonwealth to assist in forming partnerships between arts organisations and businesses, usually in the form of sponsorships.

A Note on Financing

With the decline of the major record companies and the rise of DIY and the (smaller) independent record companies, financing music recordings and audiovisuals becomes perhaps more problematical than in the past. Film has to face the problem that a single production costs millions and in Australia, with its small domestic market, production levels would probably be very low indeed were there no government support. (It’s like the orchestras.) In this case, it’s not that it is impossible for an Australian film to be profitable, but so few achieve a profit that private investment is high risk.

Private investment in music recordings is also high risk, but it is for much smaller amounts. And in any case, record companies have been able to spread the risk over a large number of recordings and cover the financial losers with profits from the few that succeed in the market. So the case for government intervention has not been as strong.

Nevertheless, there are those in the industry who would make a case for government investment along similar lines to that in the film industry – and argue that it becomes more urgent with the decline of the majors, especially if Australia hopes to achieve more substantial success on the international market.

This writer is not proposing that financing the industry is a problem to be left to the government. Above all, it is an issue for the industry itself. The focus on government in this instance is a consequence only of the fact that this paper is about the interaction with government.

Possible Issues

Tax Deductibility

Some find the present regime inadequate. It would be interesting to hear their proposals for improvement.

We can name one instance. The value of donated goods worth less than $5,000 is deductible only if they were purchased in the previous 12 months. So for instance, if you want to donate a $4,500 musical instrument that has been sitting in your closet for ten years to the local band or orchestra, you cannot claim a tax deduction. But if it is worth more than $5,000, you can. Why is this so?!

Some tax deductibility ideas from the government’s 2020 summit

• Make it easier to establish prescribed private funds.
• Introducing (sic) incentives for individual and corporate philanthropy. [Perhaps this really means “increasing” rather than “introducing”. Introduce a 125% tax deduction for [investments in? donations to?] public art and performing arts in public spaces.
• Accelerated tax deduction on investment in large-scale free public installations or performances.
• Widely promote the benefits of giving to the arts.
• Establish a formal patronage system. [Why is responsibility for this given to the government?]
• Private entities making private space available for creative purposes should receive tax incentives.
• Establish a micro-loan scheme for artists. (No details given.)

Financing

Is there an appropriate role for government in financing record production and/or marketing? This would recognise in particular, with the decline of the major record companies as sources of finance, the need for finance for small to medium companies especially to achieve effective marketing and distribution including at international level.

A scheme might encourage private investment through public/private partnerships with the Commonwealth investing in portfolios of recordings rather than single recordings and with some inducements from the Commonwealth for private investors e.g. by limiting risk through some level of underwriting losses, or through tax incentives.

Author

Richard Letts. Part of briefing paper for the MCA summit on Australian Musical Futures: Towards 2020, Sydney, 5 September 2008.