A flood of biblical proportions is predicted to hit Australia's art market as people sell or write off art held in their retirement funds.
But industry experts warn the rush to comply with onerous rules imposed on self-managed super funds that invest in art will depress prices, reduce retirement savings and harm the Aboriginal art market.
Art accountant and valuer Michael Fox said the federal government had ignored warnings about the disastrous consequences of changes to the rules governing ''collectables'' held in self-managed super funds (SMSFs).
''The super art laws - which require all SMSFs to store or dispose of their collections within two years, potentially triggering a flood of artworks on to the market - was also not worthy of a mention in the budget,'' Mr Fox said.
The changes were first proposed in 2010 and then introduced in 2011 as part of the Cooper Review into the superannuation system.
Mr Fox said there was a ''super art stockpile'' of at least 50,000 artworks, with an estimated value of $250 million, that may be sold off in the next two years. He said there had been a significant amount of divestment of pre-existing collections, with 30 per cent sold or written off in the 2011-12 financial year.
''That could be explained by a desire to seek a higher price for the artworks and collectables before the market becomes depressed by an oversupply of artworks,'' he said. ''In other words, first out, best dressed.''
The value of art and collectables held in SMSFs in March 2014 was $589 million, according to the Australian Taxation Office - far below the peak of $731 million in 2012. It has been estimated by accountancy experts that investors would need to spend up to 8 per cent of the value of their collection each year to comply with the new rules, according to art consultant Jane Raffan.
''This is a major incentive to divest, as it nullifies any likely capital gain,'' she said.
Ms Raffan said there were not enough buyers willing to buy art at prices that would suit most investors and ''many would be facing the possibility of their portfolios being sold at fire-sale prices''. But she added: ''I think the apocalyptic vision of a biblical flood is premature.''
Ms Raffan said many investors were seeking to buy works out of their funds rather than worry about compliance under the new rules, which had caused a decline in the volume of art sales.
Mr Fox said young and emerging artists would find it harder to sell new work.
''Aboriginal communities are probably the biggest losers in this sorry saga,'' he said. ''As an indication of how little art is now being produced by these communities, you only need to see the substantial decline in art materials bought by them since the super art laws were introduced.''
Hans Sip, director of Aboriginal Exhibitions, said investors faced probable losses however they tried to comply with the new rules. He said he was considering taking his Aboriginal art collection overseas.
A spokeswoman for acting Assistant Treasurer Mathias Cormann said: ''While the government has no immediate plans to change the arrangements for self-managed superannuation fund investment in art and collectables, we will carefully consider any recommendations from the upcoming tax white paper on this issue.''