Tax system must encourage funding of arts by enthusiasts

Opinion: As Fintan O’Toole pointed out in his Culture Shock article of December 8th, direct public expenditure on the arts and…

Opinion:As Fintan O'Toole pointed out in his Culture Shock article of December 8th, direct public expenditure on the arts and heritage is to be reduced again. He is probably right that there is little hope for matching these reductions with increased commercial sponsorship or gifts from wealthy individuals.

There is, however, another potential source of private money. This is donations by individual theatre, concert and gallery-goers. In 2007, UK donations from such individuals were about 200 times the Irish amount – almost 20 times per unit of gross domestic product. In Ireland, commercial sponsorship provided five times the support given by individuals. In the UK, individual giving was 2.5 times that of businesses.

These UK donors are not wealthy philanthropists. In 2008-2009, almost 70 per cent of the donations to arts organisations were less than £100 (€123), and a further 16 per cent were from £101-£300.

A majority of these smaller donors gave more than once a year. Over 40 per cent of donors to the performing arts also supported the visual arts. Such donors recognise how their lives are enriched by opportunities to attend performances and visit galleries, museums, old houses and their gardens.

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Moral obligation

In the US, these donors are constantly made to feel that those who can afford it have a moral obligation to pay their share of the cost. In 2011, individual giving provided more than 20 per cent of the income of American arts organisations and museums.

In the UK and the US, individual giving is encouraged by income tax relief on donations. Since 2000, Irish charities and “approved bodies”, which include most arts and heritage organisations, have also had similar incentives. Why have they not responded as they have in the UK? Probably the most important reason is that Irish tax relief requires donations to be at least €250.

Private giving in the UK took off only when a comparable minimum size of eligibility was abolished in 2000. Donations then grew 2.6 times in the next seven years.

Another difference lies in the tax treatment of donor benefits offered by friends’ societies. A typical society offers benefits to its members, both as a gesture of gratitude and an incentive to join. The UK tax guidelines define precisely the maximum permitted cost of donor benefits.

In contrast, the present Irish guidelines appear to consider that any donor benefit rules out the possibility of tax relief. But benefits also flow the other way, providing managers with a valuable bridge to their audiences. Since the purpose of tax relief is to strengthen arts organisations, it is counterproductive to discourage friends’ societies.

Tax relief

The Irish system of tax relief has been complex. Charities have been able to reclaim tax paid only by PAYE taxpayers, and only where a donor has supplied their tax details. Self-assessed taxpayers have been able to cut their taxable income by the donation.

Greater administrative simplicity is the object of a measure announced in the recent budget, under which approved organisations will be able to reclaim income tax on all eligible donations, independent of the tax status of the donor, as though it was paid by a taxpayer with a marginal tax rate of 31 per cent.

All donations will be made from after-tax income, so there need no longer be a suspicion that donor benefits are received at the expense of other taxpayers. Their costs to an organisation could be treated as fundraising expenses and deducted from the tax-exempt portion of a donation. Alternatively, subscriptions above a minimum could be considered a donation.

Budget 2013 appears to have left the minimum size of eligibility unchanged, probably for fiscal reasons. This means the income taxes of three taxpayers who each give €100 to an arts body cannot be reclaimed by any of the organisations.

If potential donors leave the financing of cultural organisations to others, their children and grandchildren may not be blessed with such rich cultural opportunities as they themselves enjoy.

* Timothy King is a former career economist with the World Bank and was a lecturer in economics and a fellow of Queens’ College, Cambridge. He lives in Dublin.