National Drug Strategy
National Drug Strategy

The costs of tobacco, alcohol and illicit drug abuse to Australian Society in 2004/05

5. Estimation of drug-attributable crime costs

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In studying the drug-attributable costs of crime, only those crime costs should be estimated where a causal connection can be demonstrated between the consumption of a drug
and the commission of a crime. A mere association between the two is insufficient. To confuse association with causation would result in a vast overestimate of the costs of drug-attributable crime.

5.1 Models of the drugs–crime relationship

There are four models which explain different causal roles for illicit drugs and alcohol in relation to the commission of crime (see Pernanen et al., 2000, 2002).
In practice, all four models are used in their appropriate contexts in the present study.

5.2 Methodology

The basic methodology is to evaluate the total costs of a particular activity (for example, policing or incarceration) and then to estimate the proportion of these costs causally attributable (as opposed to related) to drug use. Thus the fundamental data needs are
A variety of sources are used to derive data on aggregate costs, though undoubtedly the most valuable sources are the Reports on Government Services by the Steering Committee for the Review of Commonwealth/State Service Provision.

A drug-attributable fraction for a particular category of crime (for example, violence or theft) indicates the proportion of this crime which is assessed to be causally attributable to consumption of the drug in question. The categories of drugs studied here are alcohol and illicit drugs. The nature of these attributable fractions is illustrated by Table 14 below, which presents attributable fractions for violence classified by type of drug, in this case sourced from police detainee interviews.

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Table 14, Illustration of drug-attributable fractions for violent crime, 2004/05

Category of drug
Percentage
Illicit drugs
24
Alcohol
15
Both
7
Any
46
No substance
54

Source: Appendix B.

This table indicates that, of all violent offences for which prisoners are incarcerated, 24 per cent are estimated to be causally attributable to the consumption of illicit drugs and 15 per cent causally attributable to alcohol. A complication illustrated by this table is that some component of crime is causally attributable jointly to alcohol and illicit drugs (in the case of violent crime seven per cent). It is not possible meaningfully to disaggregate these joint fractions back to the individual drugs. Accordingly, drugs in total explain 46 per cent of violent crime with the remaining 54 per cent being explained by non-drug factors.

Collins and Lapsley (2002) produced the first comprehensive estimates of the costs of drug-attributable crime in Australia. These estimates were based on attributable fractions produced specifically for the study by the Australian Institute of Criminology (AIC). The derivation of these fractions is described in considerable detail in appendices to Collins and Lapsley (2002) by Paul Williams, and by Toni Makkai and Kiah McGregor.

For the purposes of the present study, attributable fractions have again been developed by the AIC. Appendix B presents the attributable fractions and fully explains their derivation.

Attributable fractions for prisoners are derived from the AIC DUCO (Drug Use Careers of Offenders) survey data and for police detainees are derived from the AIC DUMA (Drug Use Monitoring in Australia) survey data. DUCO examines the lifetime offending and drug use careers of adult sentenced male inmates in four Australian jurisdictions and female inmates in six jurisdictions. The DUMA collection provides illicit drug-use information on people who are detained and brought to a police station, from an ongoing survey of seven specific sites.

In the calculations for this research, all drug offences are assumed to be fully attributable to drugs (the fraction is 100 per cent) and all drink-driving is assumed fully attributable to alcohol. In addition, in this study the counting rule of most serious offence is used, as it is used in Australian Bureau of Statistics data (for example, Prisoners in Australia, 4517.0).

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5.3 Types of costs

We now consider calculation methods for the various categories of crime costs.

5.3.1 Policing

Steering Committee reports provide comprehensive cost data on policing at state and national levels. The data used are police expenditures net of receipts. These expenditures are allocated to the individual types of crime according to the proportions of detainee hours in police custody classified by most serious offence of detainee. These data are derived
from the Australian Institute of Criminology 2002 National Police Custody Survey (Taylor and Bareja, 2005), the most recent national data on police detainees. Appropriate proportions
of these expenditures, classified according to type of crime, are then assigned to types of drug-attributable crime according to the DUMA (detainee) attributable fractions.

Australian studies show that only around one-third of police call-outs result in a crime being recorded. Our analysis implicitly assumes that the attributable fractions for police call-outs not resulting in the recording of a crime are the same as for other call-outs.

5.3.2 Criminal courts

Comprehensive cost data are provided by Steering Committee reports. The data used are expenditures net of receipts for all levels of criminal courts. They are allocated to the individual types of crime according to the proportions of police detainees classified by their most serious offence, data derived from the National Police Custody Survey (Taylor and Bareja, 2005). They are then allocated to drug-attributable crime according to the DUMA (detainee) attributable fractions.

5.3.3 Prisons

Comprehensive cost data are provided by Steering Committee reports. The data used are prison expenditures net of receipts. They are allocated to the individual types of crime on the basis of data from the National Prisoner Census presented in the ABS publication Prisoners in Australia (4517.0) and to drug-attributable crime according to the DUCO (prisoner) attributable fractions.

5.3.4 Customs

Services provided by the Australian Customs Service have a variety of simultaneous functions—border protection, immigration controls, prevention of smuggling, quarantine requirements and prevention of import of illicit drugs. In practice there appears to be no way to allocate joint costs between these various functions.

5.3.5 National Crime Authority

As in our previous study, we are still unable to identify any basis upon which it would be possible to identify the drug-attributable component of NCA costs.

5.3.6 Forgone productivity of criminals

If prisoners had not been incarcerated, their labour would have been released for productive use. However, there is reason to suspect that such labour would not in all cases have been put to productive use. Using data from the National Prisoner Census it is possible to estimate the value in a free market of the potential output of prisoners if they were not currently incarcerated.

Since there are no data available on the number of people engaged in drug-attributable crime but not detained or imprisoned, it is not possible to estimate the potential value of their labour in productive employment.

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5.3.7 Private security services and home security

It would appear to be possible, from ABS data, to make very rough estimates of these types of costs. However, they are, in our view, discretionary prevention expenditures and so not relevant to this study.

5.3.8 Property theft and damage

A considerable amount of property theft is attributable to the consumption of alcohol or illicit drugs. However, conventional economic literature asserts that this type of theft does not represent a real loss to the community as a whole since, as long as the property is not subsequently damaged or destroyed, it merely represents a redistribution of assets from the victims (or perhaps insurance company customers and shareholders) to the thieves and their customers. We do not accept this argument completely since, in the process of theft and resale, a significant proportion of the property value is lost. The value of the stolen property to the thief is, in almost all cases, less than its value had been to the victim of the crime. The difference between the two values represents a cost to the community as a whole.

An Australian Institute of Criminology paper (Mayhew and Adkins, 2005) estimates the overall costs of crime in Australia in 2001, including the costs of various types of property crime. The categories of property crime whose costs are estimated are armed and unarmed robbery, burglary, shoplifting, vehicle theft, theft from vehicles, other theft and handling, and criminal damage. These costs can be updated to 2004/05 values by application of the ABS GDP chain price index.

In the judgment of the present authors, neither vehicle theft nor criminal damage can be causally attributed with any level of certainty to the consumption of drugs in the way that other property crime can. Accordingly, these two categories of property crime are assumed, for the purposes of this study, not to be affected by the consumption of drugs. DUCO (prisoner) attributable fractions are used to attribute the costs of property crime to drug consumption or to non-drug causes.

Information in Stevenson and Forsythe (1998) suggests that property on the stolen goods market will raise about 30 per cent of its new value but in a legitimate second-hand market would raise about 70 per cent of its new value. This indicates that theft causes social losses of about 40 per cent of the new value of property stolen and about 57 per cent of secondhand values. The AIC report itself does not make clear whether its estimated property losses are new values or replacement (second-hand) values. However, private correspondence with one of the report’s authors indicates that the estimates represent replacement (that is, depreciated) values.
It was not possible to identify data on the basis of which the incidence of property losses (among households, business and government) could be estimated.

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5.3.9 Administration of insurance against property theft and damage

The present report also estimates drug-attributable insurance costs. The costs of insurance against property loss have two components:
Mayhew and Adkins (2005) report an industry estimate of the costs of administering insurance for theft and damage in 2001/2 of $500m. Adjusting this figure on a pro-rata basis to exclude the insurance administration costs relating to vehicle theft and criminal property damage (see above), the relevant insurance costs in 2001/2 are estimated to have been $376m. These costs, inflated to 2004/05 values by the GDP implicit price deflator, are then allocated to drugs and other causes by application of the DUCO (prisoner) attributable fractions.

5.3.10 Violence

The epidemiological data used in this research include information on deaths, hospital episodes and bed days resulting from alcohol-attributable violence and these have been applied to DRG cost data to yield hospital costs. From these data the full costs of such violence can be determined.

No such information on illicit drug-attributable violence is provided by Ridolfo and Stevenson. However, it is possible to determine the relativities between alcohol- and illicit drug-attributable violence, and hence to estimate the social costs of such violence, by use of the violent crime attributable fractions discussed above.

5.3.11 Money laundering

A report prepared for the Australian Institute of Criminology (see Walker, forthcoming) estimates that around $2.8 billion of the proceeds of crime in Australia was laundered in 2004. Of this amount, Walker estimates, around $300 million was attributable to the market in illicit drugs.
However, money laundering has extremely complex economic effects (for example, on the allocation of productive resources, on the distribution of income in the community at large, and on tax revenues and public expenditures) which are beyond the scope of this paper to analyse.

5.3.12 The illegal tobacco market

The Australian Taxation Office (ATO) has produced evidence of the diversion into the illegal market of substantial quantities of tobacco grown in Australian plantations. The tobacco sold in this illegal market is known as "chop-chop". Table 15 presents estimates by the ATO of tobacco diverted into the illegal market.

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Table 15, Estimates of the quantities of tobacco grown, diverted to the illegal market, and seized by the ATO

2001–02 (kg)
2002–03 (kg)
2003–04 (kg)
2004–05 (kg)
Legally grown tobacco
4,068,180
3,808,148
3,496,505
3,598,880
Estimated diverted tobacco
243,000
295,000
313,000
347,000
Total seized illegal tobacco (cut and leaf)
33,637
59,525
68,205
22,444

Source: Australian National Audit Office (2006, Table 1, p. 15)

However, the ATO acknowledges that there is a range of uncertainties inherent in the estimates and so has not produced recent estimates of the implied revenue loss. Earlier estimates, referred to in Collins and Lapsley (2002), from a variety of sources showed a considerable variation.

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The Australian National Audit Office reports that:

In addition, a paper prepared for the Australian Government Department of Health and Ageing on the medical consequences of smoking chop-chop tobacco (see Bittoun, 2004) has demonstrated that smoking chop-chop presents serious health risks additional to those related to the smoking of legal tobacco.

Thus the chop-chop market is likely to have both real effects on the allocation of productive resources in the Australian economy and budgetary effects through the loss of revenues from tobacco tax and other taxes and through additional health expenditures. However, given the uncertainty surrounding the size of the illegal tobacco market, it has not proved possible to quantify these social costs.

5.3.13 Legal expenses

Costs are incurred in the employment of the legal profession in crime-related cases; for example, in providing defence services to accused. Once again, no data have been located on the basis of which such costs could be estimated.

5.3.14 Under-reporting of crime

It can be asserted with a high degree of confidence that the estimates of the social costs of drug-attributable crime presented below are underestimates of the "true" costs of such crime. Apart from the conservative estimation techniques adopted in the research for this paper, the major reason for this confident assertion is evidence that much crime is not
reported to the police.

Carcach (1997) discussed results of the 1993 National Crime and Safety Survey (see Australian Bureau of Statistics, 4509.0), which estimated that the proportions of crime reported to police were 78 per cent for break and enter, 52 per cent for robbery and 32 per cent for assault. Bryant and Williams (2000) concluded that only about 30 per cent of alcohol- or other drug-related violence was reported to the police. Carcach and Grant (2000) reported data from the 1998 National Crime and Safety Survey (Australian Bureau of Statistics, 4509.0) which showed that respectively 74 per cent and 30 per cent of (most recent) incidents of household and personal offences were reported to police.

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