4  Method

In our analysis we have incorporated published data from the Police on recorded crime in 2003/04, the Ministry of Justice on convicted cases in calendar 2003 and the Department of Corrections’ census of inmates as at 20 November 2003.

4.1  Key assumptions

Estimating the costs of crime in New Zealand is not an easy task. There are definitional issues around what counts, both as a crime and a cost, and also significant measurement difficulties around how much crime exists and what the impact of this crime is.

Some components, such as the Crown’s core justice sector costs, can be identified and measured with relative certainty. However, even for public sector agencies it is not always obvious which costs are crime-related, nor which category of crime they belong in, so various selection and allocation assumptions become necessary.

Identifying and measuring the costs facing the private sector is even more difficult. By its nature, crime falls outside the legal economy. This inevitably requires important cost components to be estimated on the basis of assumptions. We have made assumptions drawing on approaches used in other, comparable jurisdictions. We acknowledge that different assumptions could result in significantly different cost estimates.

Nevertheless, we consider that the estimates reported in this paper, while only indicative, do offer a basis to discuss the relative costs of criminal acts in New Zealand and are a useful contribution to empirically-based discussion of criminal justice policy settings.

We have made the following key assumptions:

• the multipliers used to convert recorded crime to actual crime rates, and so derived estimated total crime volumes, reflect crime reporting and recording behaviour in New Zealand;
• the social cost of an unrecorded crime is equal to the social cost of an equivalent recorded crime;
• all the main costs to victims have been captured;
• apportioning each justice sector agency’s total costs to the various crime categories accurately reflects actual expenditure by that agency;
• Crown costs actually incurred in 2003/04 represent an accurate estimate of the value of present and future costs of criminal acts occurring in that period;
• UK and Australian cost data, where used, are valid proxies for New Zealand;
• missing data are not material to the results.

More detailed assumptions are set out in the Appendix. All monetary amounts are recorded in New Zealand dollars.

4.2  Definition of criminal acts

In quantifying the costs of criminal acts we are essentially interested in measuring the impact of illegal activities on society and the quantity of state resources consumed in preventing, detecting, resolving and redressing them. For the purposes of this study a criminal act is defined as any offence for which the offender may be brought before a court. It follows that offences that are dealt with by way of instant fines (e.g. less serious traffic offences) are not included, although there is an argument that they should be to the extent that they require Police resources and contribute to negative perceptions of safety (e.g. the fear of being injured by a speeding driver).

This definition of a criminal act differs from legal definitions of crime, where a distinction is made between summary (less serious) offences, which are technically not crimes, and indictable (more serious) offences, which are crimes. Our definition of a criminal act includes both summary and indictable offences.

Taking a victim’s perspective, we have grouped the various crime statistics into three main types of offence as follows:

• offences against the person (including violent offences, sexual offences and robbery);
• offences against private property (including burglary, theft, property damage and fraud);
• offences with no direct or intended victim (including drug, serious traffic and all other offences).

These broadly correspond to acts that directly threaten a person’s physical wellbeing, acts that threaten property and acts that offend against society as a whole rather than a specified or pre-determined individual. There is a continuum of seriousness within each category.

4.3  Coverage of cost items

For the purposes of this study the following costs of crime are included:

• fiscal costs accruing to public sector agencies directly involved in preventing, detecting, resolving and redressing crime (core justice sector agencies);
• fiscal costs accruing to other public sector agencies as a consequence of crime (e.g. health sector costs and benefit fraud);
• direct economic and social costs accruing to the private sector (individuals, households, businesses and institutions) as victims or potential victims.  These costs include preventative measures, intangible costs, lost property and the opportunity cost of lost output.  We have also included local authorities in this sector.

No attempt has been made to estimate the indirect or second-order costs of crime (e.g. negative impacts on New Zealand’s tourism from theft, or on trust and confidence in financial institutions from electronic crime), due to a lack of data. While there are cases of fear of crime changing behaviour, it would be easy to over-state the magnitude of these second-order effects because counterfactuals, such as travelling elsewhere or keeping cash hidden at home, are also risky. Crime is not unique to New Zealand, and people make relative risk assessments in deciding on their travel plans and banking arrangements.

Many crimes (e.g. burglary) involve an involuntary transfer of resources from the victim to the offender. For the purposes of this study, losses to victims are counted as a cost of crime but benefits to offenders are not (i.e. they are not an offset to victims’ losses). For example, say a $1,000 laptop computer is stolen: we count the full $1,000 loss to the victim as a cost of crime, even though the item may now be worth say $200 to the offender.

Key reasons why we ignore all gains to offenders are:

• for consistency with other, similar studies;
• to avoid substantial measurement issues (e.g. in the above example there is no simple way to measure how much the laptop is worth to the offender);
• to avoid the potentially perverse result whereby the economically optimal approach might appear to be for enforcement against a particular offence to be minimised (or even for the offence to be encouraged), for crimes where the pecuniary gains to offenders offset, or even outweigh, the losses to victims;
• that from an ethical perspective it would be difficult to defend including non-pecuniary elements (e.g. enjoyment that an offender might derive from a criminal act) as an offset to a victim’s costs.

Costs accruing to offenders and their families (e.g. loss of income during imprisonment) are costs to the economy. However they are not included here due to lack of data. Nor are second-order costs that accrue to victims, e.g. increased fear of crime causing a victim to change his or her lifestyle.

4.4  Timeframe

We have used 2003/04 as the reference year, because this was the most recent year for which recorded crime statistics and actual costs for all Crown agencies were available at the time of drafting. While updating cost data to reflect the 2004/05 financial year would in all likelihood increase total costs, we consider that relative costs across the various crime categories would remain largely unchanged.

For core justice sector agencies we have used the fiscal costs incurred in 2003/04 in preventing, detecting, resolving and redressing crimes – whether those costs relate to crimes committed in that year or earlier years. This is not ideal because it requires a ‘steady state’ assumption. For example, some inmates in prison during 2003/04 were there for crimes committed in an earlier time period. Also, costs relating to some convictions and sentences handed down in the Courts in 2003/04 related to offences that occurred in earlier periods. Also, the Department of Corrections’ 2003/04 costs do not necessarily reflect the NPV of the costs relating to the actual custodial sentences being served, many of which are for more than one year. Similarly, costs to victims can be long-term.

However, data limitations preclude quantifying the costs facing core justice sector agencies for crimes committed in 2003/04 on a true NPV basis. During 2003/04, longer sentences were being phased in. Longer sentences would increase fiscal costs in the absence of any significant deterrence effect reducing the number of imprisonable crimes. Current work by the Ministry of Justice on constructing a justice sector ‘pipeline’ model may enable NPV costings for core justice sector agencies to be compiled in the future.

For most other costs (e.g. health sector costs, lost output and intangibles) NPV costings have been used where possible. This is discussed more fully later in the paper.