We call this "systemic financing" and Slovenia has had it since it's independence from Yugoslavia in the 90s.
It's a stupendously bad idea. There are already hints of this:
> Currently at issue are eligibility and the process by which recipients will be selected.
If you allow politics to finance the arts, then soon the only art you have is the one preferred by the ruling politicians.
If your political option is ruling at the moment, this may not seem that bad - as happened in Slovenia, where the "left-ish" options rule for the most part.
The problem is when "the others" take over the government, as has happened in Slovenia. Then, suddenly, everyone looses their funding while it's being redirected to the groups preferred by the new government.
And the longer since the last change, the more dependent everyone is on the "government handout" and the bigger the effect.
> The ministry has said there will be no means test and that the process will be noncompetitive. If the number of applicants exceeds the number of income awards available, selection will be randomized.
You may say, "but the system that they propose solves this problem". Yeah, sure. For now. Soon after implementation, the policitcal debate about "real artist" and "fake artists stealing money" will start, just like the one we have here. Rules will be amended to "stop people from stealing money with fake art" and BAM, you have politically set standards for what constitutes "art".
Don't get me wrong - I'm in the very small minority in Slovenia who does not support the system we have. But this may, or may not, have something to do with the fact that the only financing for arts (and NGOs!) are government grants, so those who do not agree with the system (and the people enforcing it) never even have a chance to get started. The fact that we've not known a different system for generations (since Yugoslavia, being a communist dictatorship, also had "systemic financing") does not help.
Just to add regarding the NGOs I mentioned: officially, 0.6% of the population is employed in the NGO sector. European average is ~6%. But our number includes ALL government established and funded art and science institutions (like museums and the like). We have no NGO sector. Which, by extension, also means we do not have non-establishment politics.
In short: don't do government guided systemic financing. Does not mean it's not a good idea in any form, but please do in a way that the population (via tax credits, tokens etc.) decides who to award the majority of the money to, not the politicians.