Funding for Failure – The Purpose of Arts Funding

In the light of the recent government allocations to the arts and culture sector I thought it might be interesting to explore the assumptions underlying the decisions.  And from a certain perspective the only conclusion I can come to is that the arts and culture sector in Ireland is systematically funded to fail.

The usual rationale for arts and culture funding is built on two “pillars” (to use a word very much in vogue with cultural policy makers right now) –  public good and market failure.

The Arts and culture are a “public good” –  even if you don;t use them its important that we have them – like parks, public lighting and the military and – in the good old days – education and water.

The idea of “market failure” is that some things just can’t survive in the open market,  but because its deemed important that we have them the state steps in with taxpayers money and funds thems to correct this “market failure”.

There is an assumption that the arts are inherently, economically problematic – and in many ways they are  – and that without funding they would collapse.  But that assumption ignores the environment factors.

In 2016 Enterprise Ireland disbursed €32 million in “grants” to various start-up businesses; the IDA spent €95.6 million on international companies in Ireland.

There are EIIS schemes with significant tax advantages to investors, and a relatively functional  Angel and Venture Capital network with the ability to mitigate risk through tax regulations.

In addition to this business can offset VAT paid against VAT charged (particularly useful in the early stages); there are additional grants for employment, capital investment,  and ecommerce available via Local Enterprise Offices. PwC list the tax advantages and supports as:

• 12.5% corporation tax rate on active business income.
• A 25% credit on qualifying R&D expenditures; total effective tax deduction of 37.5%.
• Ability to exploit IP at favourable tax rates.
• Accelerated tax depreciation allowances for approved energy efficient equipment.
• Ability to carry out investment management activities for non-Irish investment funds without creating a taxable presence in Ireland for such funds.
• An effective legal, regulatory, and tax framework to allow for the efficient redomiciliation of investment funds from traditional offshore centres to Ireland.

And while we’re on the topic of tax lets not forget that if corporation tax was actually paid at 12.5% then in 2016 the revenue would have collected €12 billion, as opposed to the, approximately €2 billion that was actually collected (an effective rate of about 2.5%) as a result of special arrangements and loopholes. Tax that is not collected because of special arrangements or loopholes is an effective subsidy.

So if we add up just the numbers mentioned above we can say that the business sector in Ireland is built on taxpayers money to the tune of €10.1276 billion.

Add to this the Bank of Ireland figure from 2015 that 66% of all new business fail in the first three years – primarily because they can’t scale. Imagine what would happen to that statistic if the business sector was unable to avail of €10.127 billion of grant aid through direct and indirect channels, if it was unable to avail of a range of employment supports and R&D tax credits, if it wasn’t allowed to function in a comparatively supportive tax and legal environment. And lets not forget that the education system teaches and promotes  economics, business studies, accountancy, entrepreneurship.

On the other hand we have the arts  – comparatively speaking it has no significant state support, there are no tax investment strategies, no vehicles to promote private investment, it operates in a punitive tax environment, and it is not taught or promoted via the educational system. There is the arts council, the local authority and FundIt.  Any objective observer would clearly see that this system breeds failure, poverty, and dependency.

So, businesses succeed because of massive public subsidy through direct and indirect channels, and a favourable tax and legal environment. The arts struggle because of a negligible subsidy and a hostile tax and legal environment, and that struggle is represented as a “market failure” in need of the insignificant supports that are responsible for the failure. Its almost funny.

The Culture sector in Ireland (and many other places) is funded to fail.  Its not intentional. And that’s the real tragedy.

There is another way of thinking, and government should – as they promised they would – be debating the Report of the Joint Oireachtas Committee on Culture, Heritage and the Gaeltacht  which addresses all of the issues and ideas raised here.