The ferocious debate over the Sydney Biennale, its chairman and asylum seekers is a tipping point for philanthropy as artists grasp the ethical challenge, writes Anne Maria Nicholson.

Arts organisations throughout the country have every reason to be trembling in the wake of the resignation of Luca Belgiorno-Nettis as the chairman of the 19th Sydney Biennale. His decision follows protests by artists about his family company Transfield Holding's sponsorship of the biennale and its shareholding links to Transfield Services, which won a $1.2 billion government contract to run detention centres at Manus Island and Nauru.

The controversy has blown open the whole issue of arts sponsorship and philanthropy on which they depend, partly because of the withdrawal or absence of proper government support. The money arts groups accept will be under greater scrutiny, and donors may think twice as a consequence about handing the money over.

It had to happen, sooner or later, and it's taken one of the most divisive issues facing Australian society, the mandatory detention of asylum seekers and the death of one of them, young Iranian Reza Berati, on Manus Island, to do so. This clash of ideology between arts and business has brought to a head an issue that has long been an ethical and philosophical challenge.

The Belgiorno-Nettis family is one of the most generous benefactors to the arts in Australia and has contributed millions to the Biennale since its patriarch, the late Franco Belgiorno-Nettis, became its founding governor in 1973. His son Luca chaired Biennale for 14 years until last Friday night when he stepped aside when, as he described it to me, he had "no choice" because of the threats of the "fanatical activists".

"We were told it was going to be another artist that was going to withdraw and there was going to be another set of artists that were lining up behind them. And potentially looking to do, let's call them guerrilla tactics within the show," he said.

"I'm intimately linked with Transfield, it's my family company, these activists were calling for a total separation from Transfield. I couldn't see that happening and stay on as chairman."

Although the board was reluctant to let him go, it was worried that if he stayed there would be three months of disruption and so complied with the demands of artists to sever the relationship with Transfield. It's worth noting though, that he may have left the room, but Mr Belgiorno-Nettis left behind his family's $600,000 contribution to the $10 million budget for the Biennale and intends to enjoy the event as it fans out around Sydney next week.

This amicable parting seems to have escaped the Federal Minister of the Arts, Senator George Brandis, who angrily responded to the issue in a strongly-worded letter to the Australia Council denouncing the actions of the Biennale board.* The Minister praised the generosity of the Belgiorno-Nettis family and warned the Australia Council head, Rupert Myer, that when the Biennale wanted to renew its three-year government funding arrangement the council will "have regard to this episode and to the damage" it has done. Senator Brandis wants a new policy which could cut government funding if recipients reject private sponsorships.

This escalation in hostilities would not sit easily with the Belgiorno-Nettis family which is enmeshed with a myriad of arts organisations. Luca's brother, Guido Belgiorno-Nettis, is president of the Art Gallery of NSW and the family donated $4 million recently to enhance the gallery's contemporary art collection. He is also chairman of, and a donor to, the Australian Chamber Orchestra. There's no doubt they are passionate about the arts and deeply offended by accusations of earning their money from the suffering of asylum seekers.

"It doesn't matter what we say they are going on, they are still going on, they are calling me intimately linked with human misery. Profiting from concentration camps. What is that?" Luca Belgiorno-Nettis said.

The protests began last month when 28 artists, responding to calls from refugee advocates to boycott the event over Transfield's involvement, wrote an open letter to the Biennale board saying they were "reconsidering their participation". Those who signed included British artist Martin Boyce, winner of the Turner Prize, and Australian artists Callum Morton, chosen for the Venice Biennale, and Angelica Mesiti, a prize-winning video artist.

When the board didn't agree to cut Transfield loose and advised the artists to express their feelings via their artworks, the protest escalated. A group of nine artists withdrew from the Biennale.

"We see our participation as an active link in a chain of associations that leads to the abuse of human rights. For us, this is undeniable and indefensible."

Their actions evoked the ire of the rich and powerful for daring to bite the hand that was feeding them. In essence, they've been dismissed as ungrateful ratbags.

"The sheer vicious ingratitude of it all," raged Communications Minister Malcolm Turnbull on ABC Radio.

"I hope the Biennale can survive but I think the artists that have done this have potentially driven a stake, not through the asylum seeker policy, I can assure you of that, but through the heart of the Biennale itself."

But the protest has also exposed the soft underbelly of arts patronage that some see as a way of laundering reputations sullied by making money from controversial industries.

For example, in Western Australia and elsewhere, miners have embraced arts patronage, sponsoring performances, movies and art shows. Tobacco merchants were sent packing from sponsoring arts and sport some years back, but are still prominent patrons in other countries. The GFC has hit artists hard, with less investment in art and fewer commissions. Consequently, the competition for patronage is fierce.

Guido, Amina and Luca Belgiorno-Nettis have been longstanding art patrons. ( AAP: Tracey Nearmy )

Sydney has a proud tradition of wealthy arts patrons, often with merchant banking backgrounds like Mr Turnbull, who love the arts and the status and kudos that comes with being associated with them.

The contrast between those people, who often dwell in leafy harbour-side mansions, and the artists they occasionally support, is extreme. Poverty and the arts is not some medieval myth, it's still a reality. Visual artists in Australia earn, on average, $23,000 a year, only half of which comes from selling artwork.

As the song goes: "And all the stars that never were, are parking cars and pumping gas."

By their very nature, artists are, and should be, the conscience of our society. Yet it has been my experience in the many years I have covered the arts for the ABC that artists from all disciplines shrink from publicly commenting on controversy to protect the subsidy that keeps them viable, whether it be government, corporate or private.

Critics of the protesters say that if they reject Transfield money, they should also refuse all grants from the Australia Council as it's a federally-funded agency of the very government that established the detentions centres.

One of those protesters, Melbourne artist Gabriella de Vietri, dismisses this.

"There is a big difference between private and public funding," she told the ABC.

"With public funding, our taxpayers' money pays taxes and those taxes get redistributed into multiple industries, one of which is arts and culture. Those industries don't have any bearing on each other."

But there might well be a political bearing. The arm's-length arrangement between the government and the Australia Council means the minister cannot directly intervene in funding decisions. But Senator Brandis has come down firmly on the side of corporate donors rather than the protesting artists in this stoush:

Even more damagingly, the decision (of the Biennale board) sends precisely the wrong message to other actual or potential corporate sponsors of the arts: that they may be insulted, and possibly suffer reputational damage, if an arts company or festival decides to make a political statement about an aspect of their commercial relationships with government, where it disapproves of a particular government policy which those commercial relationships serve.

The artistic director of Biennale, Juliana Engberg, has been quiet about the issue so far, though behind the scenes is talking to the protesting artists and negotiating whether or not to let them back. Taming the temperaments, let alone the myriad artworks of more than 90 artists from around the world, must be akin to herding cats.

That artwork will be unveiled next week, now with the heightened poignancy added by the asylum seeker debate.

The issue has polarised the art world and there are questions about whether this will be a one-off challenge to a sponsor, or a turning point in the ethics of patronage and the beginning of a cascade of questioning of where the money is coming from.

*This article was updated in response to comments made by Senator George Brandis on this issue

Anne Maria Nicholson is a senior journalist with the ABC. View her full profile here.