The artists' tax exemption is being reviewed pre-Budget. Arminta Wallace finds out what it's really worth to artists - and to Ireland

Though its title is not particularly melodic, Section 195 of the Taxes Consolidation Act 1997, aka the Artists' Tax Exemption, has been music to the ears of many a writer, painter and musician living and working in Ireland over the past 35 years or so. But since the Minister for Finance, Brian Cowen, announced that all tax-incentive schemes are to be fine-tuned at this year's Budget, the artists' exemption - which grants tax relief on earnings from "original and creative" works of art - finds itself at the centre of a distinctly discordant dispute.

Ireland's tax legislation boasts more than 25 such schemes, which range from urban and rural renewal projects to allowances for investment in car parks and holiday cottages, via something called "Living Over The Shop". Many of these were devised as "quick fixes" to divert money toward particular problems. But supporters of the artists' exemption claim it represents a permanent philosophical position - a desire on the part of the State to create a positive climate for the arts in a country where the market for works of art has, traditionally, been pitifully small. Opponents point to the globalisation of popular culture - and the huge profits being made by millionaire rock stars resident in Ireland - and argue that a cap on the exemption would result in a huge tax windfall to the Exchequer.

In 2001, the exemption cost the State almost €37 million in unpaid taxes. The most recent figures to be released by the Revenue Commissioners, however, show that in 2002 the total fell to just under €24 million. Almost half of that is claimed by just 28 artists, who earn between €500,000 and €10 million a year. But, says Toby Dennett of the Sculptors' Society of Ireland, to focus on the figures in this way is to look through the telescope from the wrong end.

"A lot of the publicity about this has been very negative," he says. "There's constant talk about the high earners. But in 2001, the average income of 87 per cent of the 1,300 artists who availed of the scheme was below €11,000 - which is below the average industrial wage."

Dennett believes the amount of attention the exemption has received, especially in an outraged popular press, has been disproportionate. "I'm not sure why that is," he says. "It could be that artists are an easy target - and some artists are, obviously, household names. The review that's under way is a review of all tax exemptions. When you look at the total amount of money exempt from tax under the various schemes, the artists' exemption counts for just 0.38 per cent. And if you look at the number of people who benefit from all those schemes, artists make up just 0.03 per cent. Yet there has been very little discussion in the popular media of incentives for people involved in, say, property development - or stud farmers."

What, then, did the 1969 Minister for Finance - one Charles J Haughey - have in mind when he introduced the artists' exemption? "If you look back to the late 1960s," says the director of the Arts Council, Mary Cloake, "Ireland was a poor country with very little economic growth. We couldn't really afford to support artists at the time, yet we were still able to say that they had a special place in our culture. The objectives of the scheme were: one, to make a special place for artists in Irish life; two, to recognise that artists' earnings were sporadic or uneven over time; and three, to try and make it possible for them to stay in Ireland and make a living here. Those objectives are still valid today. If we could afford to do it when we didn't have a shilling, it's a shame if we can't support artists now that times are good."

The Arts Council and the Sculptors' Society of Ireland have been voluble in their support for the exemption, and the Minister for Arts, Sports and Tourism, John O'Donoghue, has repeatedly stressed that if he is to make a pre-Budget case in its favour at Cabinet level, artists who feel they have benefited from it should make their views known to him.

Many artists, however, are reluctant to discuss their personal finances in public. Others are uncomfortable about taking a principled stand on an issue from which they, personally, will benefit. "People feel embarrassed that they're lobbying for something that's in their own interest," says Cloake. "But at Budget time, every other interest group makes a case for its income levels - I don't see why artists should hesitate about it."

With this in mind, the Arts Council has made a submission to the Department of Finance - as, together with the Irish Playwrights and Screenwriters Guild and the Association of Irish Composers, has the Sculptors' Society.

"When you're an artist," says Toby Dennett, "it's very difficult when someone says to you, 'why don't you pay tax when everyone else does?' If you don't have facts and figures, it's a hard argument to come up with. So we've produced a brochure which sets out the basic points about the exemption. We hope it will give people the confidence to defend it. We've also been encouraging artists to write to the Minister - not to make an overarching moral or economic case for the scheme, because artists just aren't good at that - but just to express their own personal experiences."

Among the facts stressed by the brochure is that the exemption is not a "get-out-of-tax-free" clause. It is confined to earnings from creative work - an artist who teaches part-time, for example, must pay tax on his or her teaching salary. In the case of performance artists, only earnings for composition are exempt; not money earned from touring or from CD sales.

But as the painter Brian Maguire points out, for the majority of artists in Ireland, real life is not a matter of laughing all the way to the bank. "Most artists go to work to subsidise their art practice - teaching, waitressing, working on the buildings, etc. You spend maybe 10 years at that. Then you begin to make work which attracts attention; and around the same time, you have a period where your family is coming into place. So you need to borrow money, yet you need to be seen as having some kind of financial standing. For me, certainly, this is where the exemption made a huge difference; in relation to applying for a mortgage and stuff like that."

The introduction of Aosdána, he says, is further proof that making ends meet, rather than making huge profits, has always been the name of the game for Irish artists. "There were highly respected artists whose work was in all the collections, but who were living in poverty," he says. "And we're still talking about poverty. The figures show that half of the people who claim the artists' exemption are earning under €10,000 a year. That's similar to what you receive on the dole."

Maguire adds that young artists coming out of NCAD, where he is a professor of fine art - "yes, a PAYE job" - are facing outlandishly high rents and living expenses. "In some ways young people are even more disadvantaged starting out in this profession than we were 20 years ago."

In submissions in support of the exemption, which can be accessed at www.finance.gov.ie, other Irish artists and arts administrators make similarly cogent points. The novelist Sheila O'Flanagan explains how an advance - often reported in the popular press as "a six-figure sum" - may have to keep a writer going for up to three years, while a book is being researched and written. And writers, she notes, do not receive holidays or sick pay.

Publisher Michael O'Brien points out that even our leading children's authors cannot make a living from creative work alone. If the exemption scheme were removed, many would either have to rely on social welfare to sustain their writing, or give up writing - in which case, a host of writing-related benefits to society, including writers who work with primary schools in deprived areas, and with children with special learning needs, would simply disappear. "In addition to this," he writes, "many exempt artists live and work in more remote areas of Ireland and become involved in local arts activities - festivals, readings, exhibitions and workshops, countering the draw of the big cities and enriching local life."

But what about those big earners? Well, as the figures show, they are very few. "There are about 10 artists at the top of the earning tree - but really, you could count the very rich people on the fingers of one hand," says Mary Cloake. "And if the artists' exemption scheme is changed to target those top five or 10 people, well, they'll just move out of the country, if not immediately, then within a year or two. I can't see U2 leaving Ireland at this stage. But their successors - the new U2s, the new visual arts people - they'll say, I'll go and live in Paris, or London, or New York. After all, that's where the markets are."

A report commissioned by the Arts Council from Price Waterhouse Cooper found that these high-earning artists not only attract to Ireland a host of support industries such as recording projects and concerts - all of which are, of course, taxed - but also, typically, pay twice as much tax as they benefit by under the exemption. "If the Exchequer were to receive an initial windfall of €37 million by removing or capping the exemption, in time that would become €25 million, then €12 million, then zero," says Cloake. "We've worked out that over about an eight-year period the windfall would dwindle to nothing. So what I'd say is that whatever changes are made to the artists' exemption scheme, the Irish taxpayer is not going to benefit."

She insists that Irish cultural life, on the contrary, would be considerably diminished. "The influence of artists may not always be visible in society, but it's always there. I think the artists' exemption has made an unquantified, but really significant, difference to the arts in Ireland."

The Sculptors' Society of Ireland brochure puts it even more forcefully. "In the 36 years of the scheme, the arts in Ireland have flourished. In most art forms, this country now punches far above its weight - a reputation that impacts directly on our economic success." The implication is that we should think carefully before we fiddle with Section 195.