Tax paper: incentive or reward?


Tax Relief for Business Sponsorship and Donations to Culture:
Incentive or Reward?

Speech given by Péter Inkei to the conference "Creative Europe - Culture and Business in the 21st Century", Innsbruck 15-18 November, 2001

The excellent moderator of the first session of the conference, Mr Erhard Busek, during one of his inspiring comments interjected a short remark, which sounded something like this: "If only we had tax laws like in America, which result in such high levels of cultural sponsorship..." The conference nodded in agreement.

Although I fully share the sentiments and pursued aims of Dr Busek, I composed my own speech around the pitfalls which I sense in the sentence that I quoted above.

There is a fundamental difference between the nature of private support to culture in the US and in Europe. In America, donations of individuals considerably exceed business sponsorship. Over there, the usual pattern is that you first get rich and then exercise philanthropy from your private wealth; most of such support is linked to names of the benefactor, typically to the foundation that bears his (and his wife's - sorry, I said typically) name.

In Europe, only in the UK does private donation get near to the amounts of business sponsorship. And with the exception of a few big foundations (Volkswagen, Bertelsmann etc.) most of the money going from European business to culture is real sponsorship - a part of business communication.

How much? - is the natural question, when we speak of sponsorship to culture. Very few culture ministers will be able to give (or get) a simple answer to such a simple question. Especially in countries (e.g. Hungary), where tax legislation does not officially define sponsorship. In such places, mostly tactical reasons, often lack of information, sometimes points of prestige, influence whether the support given is entered into the business books as "publicity" or as "donation".

Even where taxation and business statistics apply the term "sponsorship", the recipient sector is rarely identified. Various estimates will then incur the share of culture from all charity spending (ranging from 7 to 12%).

Also there is the issue of support in kind. Not unfrequently, the value of such contributions is higher than the funds raised in cash - depending of course, on how these goods are valued (typically free or reduced flight tickets, hotel accomodations, venues, advertisement spaces etc.).

Facing all these difficulties, in most cases we can have estimates only. Sometimes these are based on surveys done on some sample. What one can conclude from various sources is that in Europe private support (business sponsorship and private donations taken together) adds 2 to 12% more to the total public funding to culture. On the average - whatever is meant by "average".

The real weight of private support is much higher. Traditionally, most of public funding goes to areas which are less attractive for private funding: maintenance of, and investment into cultural institutions (museums, theatres, cultural centres etc.), including the payment of their personnel. Also cultural diplomacy is largely a governmental chore. Most of such spending is already earmarked at the outset and little is left with no or looser string attached, for programmes and goals coming up during the course of implementing the budget. On the other hand, only a tiny part of private support is institutionalised by long term strategy agreements, the greater part is unallocated at the outset. If we compare the flexible, unallocated public and private funds, the latter may in many cases come on a par; the "2-12% plus" thus indeed becomes 100% plus. (I am discussing "average" macro-level now; noting that there are many sectorial or regional pockets where private sources exceed public funds by multiple.)

There are clear differences by the level of business sponsorship to culture between countries. To what extent is that due to differences in fiscal legislation? The Budapest Observatory has conducted a survey on tax legislation in a number of countries; we have also studied the relevant publications. These inquiries, however, have not produced definitive evidence on a positive correlation between the tax incentives and the level of sponsorship in a country. In fact, the tax regime in the UK - a model country for private funding for culture - is in many ways stricter than in a number of liberal systems in Eastern Europe, where such funding is meagre.

There are a number of conditions which may effect on the growth of private funding for culture. First, there are conditions which are well beyond the culture minister's competence. Until there is a considerable level of GDP, it is futile to dream of high profits which their owner will share with good causes. Again, before a certain phase of primary accumulation is accomplished, businesses spend their profits on their own survival and growth - entire national economies have shared this feeling in Eastern Europe in the past decade.

Also, businesses spend where they can expect sales. Much of the GDP in East European countries is generated in customs free zones or is exported otherwise; such multinationals are little interested in impressing the local public. (Except if they sell well on the place, like Coca Cola.)

Of course these "guest-manufacturers", too, may feel obliged to please the national or local government. E.g. to express gratitude for tax reliefs which foreign investments often enjoy, especially on municipal level.

What really and significantly influences the level of public benefit expenditure is traditions, value hierarchies, expectations, the social ethos.

In America, the huge private cultural endowments historically owe much more to social expectations than to clever or cruel tax regimes. From the late 19th century, when the first vast private fortunes were born, civic pride - and inheritance laws, rather than any other fiscal measure - led to the model of private philanthropy that is alive to-day. Income tax has existed from 1913 only, both for individuals and corporations.

What I have said so far may amount to a certain defetism, in the sense that cultural ministers can do precious little to boost the level of businesses spending on culture.

This is not the case. I indeed say that with low GDP, limited sales market and transition pains it is illusoric to expect anything that compares to the west. Also that a government that singles out tax incentives is totally wrong. But I am convinced that even a little additional and deeper care paid to the topic of business sponsorship and donations will yield good result. All this may boil down to the issue of creating favourable climate to private support to culture.

First of all, there's is still much to do in order that business sponsorship should gain a positive image. Market is still demonised by many cultural devotees, much more than what market really deserves to be despised for. By idolising the 3rd sector in our efforts to de-politise culture, we tend to forget that a great part of the 2nd sector (business) has similar attributes: civic initiative, autonomous values, independence from political power etc. Making a few steps in this direction does not mean that the culture minister succumbs to commercialisation.

While searching for new partnership with business, the cultural administration must avoid the trap of emphasising demands. Such excesses produce at least two kinds of counter-effects. By appealing too strongly to the responsibility of business (whether managers, or the new-rich owners) we may create unpleasant atmosphere of guilt and may create a perception of command position in some of them. Also by over-acting the begging for help does harm to culture itself, increasing the feeling of deprivation and prostitution. Real new partnership was repeatedly described in this conference as a win-win situation of fair deals between equals, where something is given for something.

Awareness and recognition are the key terms of a conscious attitude of cultural policy towards business sponsorship.

The increased statistical knowledge about the actual size and composition would serve not only as food for a few researchers or arguments in the wrestling for fiscal resources. This kind of data is taken up by the press, communicated to the public and highlights the case better than abstract statements.

The culture minister can promote the issue by his/her personal recognition (presence, letter, mention, award etc.) to outstanding instances of private support to culture. A record of honourable cases should be kept.

When positive atmosphere has been created around business sponsorship and donations, will it be indeed timely to approach the finance minister and the government to achieve tax relief. These measures appear to me really functional and effective when they act as rewards for highly valued social deeds.

Indeed, our survey suggests - although not really proves - that taxation measures themselves often follow an increased interest towards donations and sponsorship, and thus act as political reward systems, rather than acting as initiator of mass philanthropy. Nothing wrong about this.