Estimates of the Costs of Crime in Australia in 1996

Estimating the financial and economic costs of crime involves the use of sophisticated methodology plus a pinch of guesswork. This paper aims to identify the scale of the costs and if the current range of crime prevention efforts result in a reduction in crime of one-half of one per cent, the saving to the Australian community, on the basis of data in this report, could be in the order of $100 million per annum.

[Adam Graycar, Director, Australian Institute of Criminology]

 It is widely recognised that an assessment of the overall economic impact of various crimes is an essential basis for policy and decision making. An estimate of the relative costs of different types of criminal offence was first attempted by the Australian Institute of Criminology in 1992 (Walker 1992), and this paper revises those estimates.

The approach taken is as follows. Some types of crime are estimated from police and/or victim survey data on average community costs per crime and the estimated incidence of crime throughout Australia. Other crimes, including the significant categories of fraud and drug offences, have been estimated by assembling the results of various authoritative studies and "reading between the lines" to find the most credible figure.

Where updated figures have been found, then these new figures have replaced those used in 1992. Where no new figures are available, then a simple adjustment has been made to the 1992 figures to reflect inflation. Where entirely new and more credible data sources have produced new estimates for either cost-per-crime or for incidence of crime, these have been preferred.

The two fundamental questions addressed by this paper are:

Defining the Costs of Crime

The costs of crime include not only property losses and/or medical costs incurred during the actual incident and its immediate aftermath. They include the costs of long-term and wide-ranging consequences of the incident, the costs of preventive efforts made to reduce the future incidence or severity of such crimes, and they include the costs of the criminal justice system set up to deal with the offenders. Some less tangible costs, such as those resulting from a lack of full participation in life because of the fear of crime, should in theory be included, but can rarely be quantified. Two quite separate types of costs are identified by economists (HOSCCP 1988): the financial and the economic costs of crime.

Financial costs are those costs which are not, in the eyes of economists, losses to the community, but are illegal transfers of purchasing power from victims to offenders. Thus the thief who steals $100 is better off by that amount, cancelling out the $100 loss incur-red by the victim. Yet we intuitively count these as costs of crime; this report follows this intuition.

Economic costs of crime arise when crime causes society to divert time, energy and resources from more productive purposes. These include the diversion of scarce medical resources to the treatment of victims of crime, the quality of life losses incurred by victims, and the time spent by victims assisting police with enquiries, as well as the more obvious costs of public and private resources used against crime.

Some Problems

Neither financial costs nor economic costs of crime are easy to define or measure. For example, the economic costs of crime prevention can include security hardware, environmental design and various lifestyle measures. Estimates from the security industry therefore must underestimate total prevention costs, yet, by its very nature, the extent of the underestimation is indeterminate.

Long-term and indirect costs of crime are often particularly difficult to define. For example, serious victimisation which causes severe emotional stress can in turn affect employability and therefore career earnings. These types of costs can be seen to have economic "multiplier effects" in which the victims’ families, relatives, business associ-ates and even whole communities also suffer losses. Where do we draw the line?

The criminal justice system itself costs taxpayers several billion dollars each year, yet its many employees contribute to taxation revenues. Arguably only the net costs, not the total costs, of the justice system should be counted. Yet it is extremely difficult to make these distinctions.

Including payments of fines, insurance payouts and Criminal Compensation payments is another difficulty. Fines, like taxation, must be counted on the other side of the ledger, and are not within the scope of this paper. In the cases of insurance and compensation, we count only the administrative costs incurred by the organisations making the payment.

It may even be argued that some community benefits accrue from crime; for example, for some offenders, crime may be an alternative to claiming social welfare benefits.

Financial & Economic Costs of Crime and the Criminal Justice System

As far as this paper has been able to estimate, the minimum total costs of crime in Australia lie somewhere between $11 billion and $13 billion per year. Since there have been numerous instances where significant additional costs have been identified but not quantified, the true figure is likely to exceed the upper end of this range¾ that is a minimum of 2.5% of Gross Domestic Product. The largest components of these costs are the result of white-collar crime. The cost of the combined private and public efforts to prevent and counter crime amount to around $8 billion per year¾ around 1.9% of GDP. This figure, too, is likely to err on the low side, since there are additional costs which have not proven amenable to calculation. Overall, then, it appears that crime costs Australians at least $18 billion per annum, or around $1000 per man, woman and child, $2800 per household, or over 4% of GDP.

Table 1. Summary of Estimates of Costs of Crime and Justice, Australia 1996

Written By John Walker
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