Funding to support Scottish artists requires "urgent, robust action" and needs significant changes to make the system sustainable, according to Holyrood's Culture Committee.
Pressure on budgets and "inadequate" spending has prompted MSPs to recommend the funding system is "reset".
The committee urged the Scottish Government to spend a minimum of 1% of its budget on the arts.
The report by the Scottish Parliament's Culture, Tourism, Europe and External Affairs Committee into the sustainability of the arts concluded "Scotland's arts funding system is facing ongoing challenges and uncertainty", with uneven distribution across the country.
It adds: "Public funding of the arts will only be sustainable if artists are paid a fair wage and the committee therefore calls on the Scottish Government and Creative Scotland to take urgent, robust action on this issue."
The committee has now called for an urgent resetting of arts policy and funding.
Committee convener Joan McAlpine said: "The overall aim of this report was to put the focus of the arts funding system on the artists themselves.
"The committee heard compelling evidence that significant action is needed to achieve this.
"Public funding of Scotland's arts and culture will only become sustainable if artists are at the centre of policy and paid the fair wage they deserve.
"The committee has therefore called on the Scottish Government and Creative Scotland to take urgent, robust action to ensure this becomes the case."
On the issue of pay, the report argues many artists view the current funding model as "a bureaucratic system that does not adequately support them to build sustainable careers".
It instead recommends greater transparency for funding going to artists and a wider array of bursaries available.
Deputy convener Claire Baker said: 'As culture is not a protected budget, it is vulnerable to funding pressures and the provision of cultural services across the country is variable.
"A sustainable arts funding system is one where the Scottish Government and local authorities work in partnership to support creativity in all parts of Scotland and there is a need to reset this relationship."
Warning "the geographical distribution of national arts funding therefore needs to be improved as a matter of priority", the report also recommends that the Government and Creative Scotland re-establish a programme of funding for regionally-based arts officers in local authority areas where the investment is "significantly below the Scottish average".
A Scottish Government spokeswoman said: "We thank the Culture, Tourism, Europe and External Affairs Committee for their report on funding of the arts.
"We will carefully consider its contents and respond in due course."
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