Resale Royalty for Art - when Principles Collide with Policy Design Reality

Six years ago Australia’s artists’ resale royalty scheme was introduced, under which artists receive a percentage of the value of certain resales of their work. Three years ago a Departmental review was commenced. There has still been no announced outcome of that review, but the divided opinions of submitters to the inquiry suggest that the scheme has some issues.

It is nearly a decade since the Senate inquiry into Indigenous art, which examined the royalty scheme idea, but wasn’t able to agree on whether it should be implemented.

Now, co-authors economist Nick Gruen and artist John Walker have critiqued the scheme's effectiveness. Walker and Gruen’s analysis demonstrates several important issues. The first is how a policy intended to implement a sound principle can be challenging in practice. As one experienced professional in arts administration observed three years after the scheme had commenced:

We lodged a submission in favour of such a scheme, when it was first mooted. Our sparkly-eyed enthusiasm has been dulled, but not nearly as much as that of the arts industry and practicing artists.

Not only has the scheme proven to be administratively complex, Walker and Gruen point out that it appears to have cost more to operate than it has raised for artists and their families. This is a classic case of needing to think through the economic reality of policy proposals.

The resale royalty scheme also shows how a holistic approach to policy design is important, but can be hard to achieve. It always has been – and still is – hard to know how charging a resale royalty affects the market for selling new works of art. This is very important to the overall design, but is perhaps the hardest piece of the puzzle to solve. It might be a good idea to ensure that artists and their families benefit from their works being resold at profits – but what if introducing a resale royalty causes a drop in the original price they get for their paintings? Will they ever regain the lost benefit of that first sale? No-one really knows, but Walker and Gruen think that the evidence is against the scheme.

The most interesting issue raised by the royalty scheme is the challenge of balancing competing objectives, particularly if important social values are in play. When a resale royalty was first mooted, it was through a strong desire to ensure that contemporary Indigenous artists, who are often among the poorest Australians, benefited from the sometimes massive price increases their works experienced when they were resold. This strong Indigenous focus was reflected in how, although it is a resale royalty scheme for all art, the government classified it as an Indigenous policy program.

However, trying to focus on these legitimate Indigenous needs created a potential tension between efficiency and values. The work of Walker and Gruen, and others like Jon Altman, suggests the royalty scheme is seriously inefficient. However, within a scheme that is generally a poor performer, significant royalty payments have found their way to some Indigenous Australians.

What to do? Conventional economics would suggest that it would be more efficient to scrap the scheme and simply make welfare payments to those Indigenous people. This would have a lower cost to government, and be simpler for art galleries and artists. But this would have a non-monetary cost: it would break the connections government and society want to foster, between creative activity, commercial success, cultural pride, and economic benefit.

This conflict is very real. When submissions were made to the government during 2013, art centre representatives and corporations were strong supporters of the resale scheme, while many non-Indigenous artists and economists were equally vociferous critics.

The Commonwealth is in a difficult position, which explains why the review has not been finalized. A re-design of the scheme would seem in order, but in a depressed art market, the exercise may be futile. Whatever the case, resale royalty is a salutary case study in the complexities of policy design.