Not So Super For Art

If you commission a review you have to be prepared for the unexpected. The artworld was certainly taken by surprise to wake up one morning recently to the news that the Federal Government’s commissioned review of the operation of Australia's Superannuation System had recommended the prohibiting of investment in art by the estimated 423,000 Self Managed Super Funds (SMSF).

The findings of the Final Report ‘Part 2: Recommendation Packages’ of the so called Cooper Review were delivered on 30 June 2010 and released on 5 July on the website www.supersystemreview.gov.au. The Government has said it will now consider the final recommendations of the report before providing its response and will be consulting the industry on the key proposals.

The obvious consequence of this recommendation which has united artists, galleries, dealers and art industry organisations in opposition, will be a considerable loss of income to artists and their support infrastructure.

The National Association for the Visual Arts (NAVA) shares the deep concern of most in the art industry that the report does not provide a clear rationale for this decision and brushes aside the deleterious impact predicted by financial experts in the art sector. The implication is that investment in art is too risky. However, the same rule is not recommended to be applied to the rest of the superannuation sector – the large Australian Prudential Regulation Authority (APRA) regulated funds - which presumably would be running exactly the same risks.

Experts estimate the value of superannuation investment in art in Australia to be worth $100 million per annum. For the SMSFs that have made this investment, the recommendation is either that they convert to a Small APRA Fund (SAF) or alternatively, dispose of these assets. Initially the disposal time being considered was ten years, but in the final report this has been reduced to five. What this will mean is that these millions of dollars worth of art will come onto the art market for sale within a very short period with the substantial risk of loss of market value not only of those works, but possibly could have a ripple effect on other works by the same artists.

The Review has said that, “these assets lend themselves to personal enjoyment and a range of ‘non-investment’ factors and therefore can involve significant current day benefits being derived by those using or accessing the assets.” The current restrictions on the use of artworks purchased by SMSFs. Legislative requirements stipulate that such artworks must be kept in storage or held by a third party. They are not to be used by the SMSFs, meaning they cannot be exhibited on the property of the purchaser. However, they can be loaned to other entities and such loans can provide a public benefit.

As an example, when the Building Union Superannuation Fund (now called Cbus) began its art collection around 1990, around $2 million was allocated for investment in Australian art.  Guided by a then leading Australian art dealer Dr Joseph Brown, the collection includes examples of colonial, impressionist, modernist, Indigenous and contemporary art and has been a very lucrative long term investment for members. We understand that this collection has been made available for touring and exhibition through regional galleries. In addition, Cbus Chief Executive David Atkin estimated that “the collection has increased in value five-fold since 1990.”

NAVA will be advising the government not to adopt these particular Cooper Review recommendations. Tamara Winikoff NAVA’s Executive Director said, “If the Government follows these recommendations, it is likely to cause instability in the Australian art market through disposal of works currently owned by SMSFs, a significant decrease in the purchase of artworks and thus a contraction of income earning opportunities for artists and their galleries. NAVA believes that the Review may not have given long-term consideration to the financial, social and cultural consequences of this proposal.”

Tamara Winikoff

Executive Director

NAVA