Home > Oz Politics > A better way of collecting fines

A better way of collecting fines

June 18th, 2016

Although I’ve been involved in economic policy debates for most of the last 40 years, it’s not often that I can point directly to a substantive outcome, in the sense that a policy proposal I’ve generated is implemented, or at least adopted by a major political party. There’s nothing surprising in that. There are lots of people involved in the policy process, and most successful policy proposals reflect the efforts of many people, combined in such a way that it’s hard to tell whether any one person mattered.

But I was happy to see this proposal from the Labor Party to allow state governments to collect criminal fines through the tax and welfare systems (as with HECS debts and child support), rather than jailing defaulters as at present. This was idea I put forward in a paper with Bruce Chapman, Arie Friedman and David Tait, back in 2004 (paywalled, unfortunately).

As is argued in Labor’s press release, there would be obvious improvements and cost savings, as well as the avoidance of unnecessary suffering for people who can’t afford to pay. But for me, the change in collection mechanism is of interest mainly because it makes possible more radical reforms.

First, with a more effective way of collecting fines, it would be possible to expand the use of fines to more serious offences that currently attract good behavior bonds or short prison sentences. As far as I can determine, good behavior bonds are fairly ineffectual and short prison sentences are positively harmful.

Second, the collection mechanism would make it possible to relate fines to capacity to pay, so that high income earners would be unable to shrug off a fine as a lifestyle expense. In the 2004 paper, we discussed the idea of “day fines”, equal to a day’s income. That’s probably too radical, but we could get close with a system where the fine was set to a fixed amount or the maximum that could be collected at a given rate of deductions over (say) a year, whichever was less. So, for example, if the fine was $1000 or 2 per cent, someone with an income greater than $50 000 would pay the full amount, while someone on a lower income would pay 2 per cent of that income.

Somewhat to my surprise, I note that the Institute of Public Affairs agrees with Labor’s proposal and (at least implicitly) with the first point above, the need to replace imprisonment with less costly alternatives. This has happened a few times lately. Perhaps some of the high-profile departures in recent years have increased the influence of genuine classical liberals like Chris Berg and, it seems, Andrew Bushnell who wrote the piece of linked.

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  1. June 18th, 2016 at 06:29 | #1

    This works because value is relative to the person. It works because the punishment can be made to fit the crime. It is the opposite to mandatory sentencing. It works because the rules of sentencing can be adjusted through case law processes. At a systems level it works because each punishment can be thought of as an independent object. The exchange of value can be made as a promise rather than an obligation. Of course broken promises have consequences but those consequences can vary. You can imagine it working where, if there is a victim, the victim is part of the decision process. You can imagine the offender’s own social network being involved in the sentencing.

    I hope they get a evolutionary biologist to help them design the system. They will need technical expertise that can search previous cases for similarities and to model what is likely to be the outcomes. The system needs to be able to evolve and not constrained by too much legislation. It can start off with relatively simple but frequent cases like traffic speed violations. Start with those and see what works best.

    A really interesting problem and one that is going to need expertise in persuasion to convince the public that it will work.

    I expect the Nordic countries with higher levels of social trust will have some existing models.

  2. Chris
  3. Ikonoclast
    June 18th, 2016 at 09:26 | #3

    On balance, I am in favour of this proposal. It has its own benefits and drawbacks but the new drawbacks seem considerably less than the problems in the current system.

    I am concerned about one form of policy drift which is related to this issue. One might characterise this as a trend to move from taxes and charges to fund state government expenditure towards gambling revenue and fines to fund government. This is a pernicious trend as the revenue burden then does fall more on the poor and the foolish. Of course, one has to ask if what I am positing is a significant trend or am I simply straining out gnats? In general we should not move any more towards a regime of under-taxing and over-fining but at the same time there are certainly very great benefits from not over-imprisoning. Making fines relative to income and wealth has to be a central part of any such policy.

  4. GrueBleen
    June 18th, 2016 at 15:21 | #4

    But ProfQ the really high earners have just about zero income – or at least they do if you believe their income tax returns – and how would you measure their income even if you don’t believe their tax returns. So they’d pay almost nothing.

    Is Chris Berg really a genuine “classical liberal” ? He’s never impressed me as such, but I bow to your evaluation.

  5. Chris
    June 18th, 2016 at 18:38 | #5

    @GrueBleen
    Too easy! Just impute an additional income component calculated as [total assets] x [Reserve Bank interest rate]

  6. GrueBleen
    June 18th, 2016 at 19:51 | #6

    @Chris

    Oh dear me, Chris, why didn’t I think of that ? Maybe because those who can hide their income from the tax office can also hide their assets in foreign tax havens … yes ?

  7. June 19th, 2016 at 11:50 | #7

    @GrueBleen Let us fix that as well by evolving our system so that it is difficult to hide assets.

  8. Nick
    June 19th, 2016 at 14:54 | #8

    GrueBleen: “But ProfQ the really high earners have just about zero income – or at least they do if you believe their income tax returns”

    And yet some 21,486 females, and 75,636 males still reported incomes in excess of $324,586 for the year 2013-1014.

    That may not represent their true income or their true wealth, but it’s enough to go on for the purposes of evaluating the fines they should pay under a scheme like the one John is suggesting. Unless someone is willing to live very modestly, it’s difficult to conceal *all* of their earnings and assets in overseas tax havens…

    Using something like the Finnish system Chris linked to above:

    $325,000 / 365 = $890 a day / 2 = $445 * 12 days = >$5,340 for driving 25kms over the speed limit

    Seems reasonable, given the current fine in Victoria for 25kms over is $417.

  9. harley
    June 19th, 2016 at 20:26 | #9

    John I’m not sure why you are surprised that the IPA would like that policy.

    If there is a capped maximum, ie in the example you provide of $1000 then the rich pay a smaller percentage of income than the poor (and that’s assuming equal evaluation of gross income).

    It’s a regressive tax.

  10. GrueBleen
    June 19th, 2016 at 23:37 | #10

    @Nick

    Well Nick, apart from noting that your statistics indicate an appalling state of gender inequality, you still need to show that the very wealthy – and a mere $325,000 pa is nowhere near very wealthy – still won’t just be able to treat the fines as, in ProfQ’s words, “a lifestyle expense”.

    As Harley above says: “It’s a regressive tax”.

  11. Nick
    June 20th, 2016 at 00:56 | #11

    “your statistics indicate an appalling state of gender inequality”

    They do indeed. I’m glad it stood out.

    “you still need to show that the very wealthy – and a mere $325,000 pa is nowhere near very wealthy – still won’t just be able to treat the fines as, in ProfQ’s words, “a lifestyle expense”.”

    $325,000 was the cut-off for the top percentile: the top 1% earning men and women in Australia. See the second column in the ATO doc I linked to. The mean declared income for the top percentile was ~$700,000 – which is “very wealthy” by anyone’s definition. The fine in the mean case via the Finnish model would be ~$11,000, and move steadily upward from there…

    And yes, a fine of $5,340 for a speeding offence for someone earning $325,000 is more than simply a “lifestyle expense”. It’s roughly one week of work, as opposed to, currently, 2 hours of work. That sticks in anybody’s craw.

    In any case, it’s a vast improvement. I’m not sure why you’re quite so determined to throw the baby out with the bathwater.

    “As Harley above says: “It’s a regressive tax”

    Huh? I’m pretty sure harley was referring to something different. I think there should be a minimum cap, not a maximum. I don’t think that’s too radical at all, John.

  12. GrueBleen
    June 20th, 2016 at 16:33 | #12

    @Nick

    I’m happy, Nick, to grant your basic premise that it would at least penalize many of the wealthier members of society which the current fixed levels of fines do not. But I still think that as you move up the income scale the relative impact of the penalty (and thus its possible behavior inhibiting effect) decreases. In that sense it is a “regressive tax” – in the fairly common take that non-criminal fines are just ‘revenue earners’.

    But then, as the wise man once said, in all matters I try to remember that:

    1. I am not God.
    2. This is not heaven.

  13. GrueBleen
    June 20th, 2016 at 16:37 | #13

    @Kevin Cox

    Hmmm, “evolving our system” is one of those weasel-word phrases that hides the fact that it would take a major revolution to “evolve our system” to anywhere near that level of effective change.

    Please note my closing remarks to Nick, above.

  14. Liam
    June 20th, 2016 at 19:30 | #14

    Congratulations Professor. The people who will need that the most and to whom it will make the most difference will probably never realize there has been a change, nor whom they should thank.

  15. Nick
    June 21st, 2016 at 02:28 | #15

    GrueBleen, I have no idea what you’re on about. None of us is God, and this is merely a blog comments section. But we can at least try to get our facts straight. A progressive punishment scheme is a “regressive tax”? If you think so.

  16. June 21st, 2016 at 05:25 | #16

    @BlueGreen Drop the R from Revolution and you get Evolution. They are both about change. So what sort of Revolution would you propose to address the problem of fines?

    The evolution of fines that the assets of the perpetrator are considered when setting a fine is worthy of an experiment. The evolution proposed by the Labor party to collect fines through the tax and welfare systems is a worthy experiment.

  17. GrueBleen
    June 21st, 2016 at 08:14 | #17

    @Nick

    Perceptive insights, Nick, and long may you cherish them.

  18. GrueBleen
    June 21st, 2016 at 08:35 | #18

    @Kevin Cox

    Indeed it does, Kevin, but in my experience ‘Revolution’ is directed and of reasonably short timeframe, ‘Evolution’ goes where it will over much longer timeframes.

    But because:
    1. I am not God; and,
    2. This is not heaven.
    I can’t say that I possess the knowledge or wisdom or sheer bloody-mindedness to propose an effective Revolution. Or to command an army of revolutionaries.

    Yes a progressive fine apportionment would be at least an interesting experiment, but worthy only if it can, in fact, be achieved. So, bureaucracy (how much, how expensive) to track everybody who cops a fine’s assets and income – far more accurately than the Tax Office seems to be able to do – and then a legal system to enforce the arrived at valuation against whatever legal objections the finee can raise etc etc. And then, finally, a collection regime that can enforce payment (some of which, I guess, already exists, but is it actually working ?)

    Perhaps you have some insight as to how the political and social setup for “truly” progressives fines could be established and maintained and what it would cost initially and over time.

    Collecting fines through the tax and welfare systems sounds good as a way to ensure fines are, in fact, paid by everyone. But as a moderately dependent receiver of welfare (aka age pension) I can see that this system would have its difficulties – particularly where, say, collecting the fine caused serious problems – eg in paying rent and power, paying for food etc. Or maybe in some cases the rate at which welfare payments are reduced to pay the fine might require payment of even fairly small fines to require year(s).

    Just some of my thoughts, anyway.

  19. June 21st, 2016 at 09:53 | #19

    @GrueBleen I understand where you come from. It is difficult to image that we can make small evolutionary steps that will cause a Revolution – but we can. Yes I do have an insight into how to evolve the political and social setup. Many others have the same insight and the world is changing and the change is going to accelerate.

    The insight is pretty obvious once it is pointed out. It is to model political and social systems as evolutionary systems with uncertainty. This contrasts to existing models which think of them as clockwork systems where if we have enough information we can determine outcomes. This view is particularly prevalent with economic model.

    Traditionally we build systems with the assumption that we can predict outcomes and we can plan how they will operate. For those of us who build software systems that view became obsolete about 15 years ago. All the new successful systems today use an iterative, evolutionary approach to development. A good way of thinking about it is Minimum Viable Product development. When you want to build a new system you think of the minimum product that will do something useful in the problem domain. You build the system and get users to use it. You then learn from the users what to do next and how to expand the system. The system evolves.

    We can take that idea a step further and think of changes as “mutations” and try out mutations on existing systems and see if they work.

    One mutation is to stop thinking that we can be god and that this is heaven.

    This mutation changes the way we do things. We would stop passing laws that say “this is how we will do things”. Rather we will make changes to the way we operate systems and see if this gives the desired outcome.

    Doing things this way is embodied in the idea of distributed systems made up of communicating autonomous agents. The theory that explains why this idea works can be found in the Mark Burgess book – “In search of Certainty”. https://www.amazon.com/Search-Certainty-science-information-infrastructure/dp/1492389161

    To see an example of how this works in nature take a look at Deborah Gordon’s talk on ants.
    https://www.ted.com/talks/deborah_gordon_what_ants_teach_us_about_the_brain_cancer_and_the_internet

    To see an application of how it can work for funding infrastructure have a look at Water Rewards. https://kevinrosscox.me/2016/06/12/water-rewards-envesting-in-infrastructure/

  20. Moz
    June 21st, 2016 at 12:42 | #20

    GrueBleen :
    the really high earners have just about zero income – or at least they do if you believe their income tax returns

    For motoring offences you could use the value of the car as a third input, as is done for the “car crushing” offences now. But in the more general case I think the ATO is the correct body to deal with zero income people. As the plod do with some crimes, simply say “wow, that house must cost an absolute fortune to run, can you explain how you manage that on a taxable income of $27 a year?”

    You would have to exercise a small amount of caution around both malicious prosecutions (“driving while black”) and high-wealth/low income people but I think it would work better regardless.

    Also, as a bicycle rider I love the idea of fines tied to the cost of the vehicle, rather than the NSW system where the fines are *higher* for cyclists because the state government hates us. Even though I ride an expensive bike, I’d cheerfully fork out 20% of its value as a fine rather than the $500 they seem to have settled on for “getting in the way”. Especially because 20% of the market value is much higher for almost all motorists 🙂

  21. Nick
    June 21st, 2016 at 15:10 | #21

    GrueBleen, my apologies for unpleasantness. I didn’t appreciate the tone of your earlier remarks to Kevin and chris, and I’m a sucker for jumping in in that kind of situation. My comment to you last night was petty and unnecessary.

  22. GrueBleen
    June 21st, 2016 at 16:20 | #22

    @Nick

    Thank you for those sentiments, Nick. I wasn’t particularly concerned by what you said, I just thought you had basically ended our interlocution and I was registering that state.

    However, I am curious as to what you think my tone to Kevin and Chris was – banter, certainly, and some age induced cynicism to be sure. But what did you object to ?

  23. GrueBleen
    June 21st, 2016 at 16:41 | #23

    @Moz

    Ah, Moz, I’m not sure I’m the most sympathetic person to reveal your bicycle riding habits to. I may once have been so – say between the ages of 10 and 17 when I did a lot of bike riding myself … but things were very different then: way fewer cars on the road and definite ‘reverse peak’ times when almost nobody was on the road (eg between about 10:15 and 11:30 on Melbourne’s roads during the working week at the time, back in about 1965 through 1975.

    But I have seen some very expensive bicycles advertised – many $thousands – whereas my 2000 Toyota Echo probably has a market value of maybe $2500 (if that). So will it be the “current market value” of the vehicle, or maybe some inflation adjusted initial purchase price that is used ? And if somebody buys a second hand car – say maybe a Roller that when new cost $500,000 but they only paid $50,000 to buy it then which value should be used ?

    And if its the ‘most recent purchase’ price, what’s to stop the rich from buying a car via offshore tax haven funds and then “selling” it to themselves at a vastly reduced price ?

    What kind of bureaucracy would we have to set up to detect and unravel such goings on and defending whichever decision is taken against the many and varied legal challenges that will doubtlessly be raised ?

    When I mention that “2. This isn’t paradise” I basically mean that I just don’t trust things to turn out for the best any more and because “1. I am not God” then there’s nothing I can do to fix that.

    The “value of dwelling including cost of servicing and maintenance” might be a better go, but I can be sure that there would be numerous ways around that which are yet to be explicitly enunciated.

  24. GrueBleen
    June 21st, 2016 at 16:47 | #24

    @Moz

    And, by way of a PS, you can tell how ancient I am because I said “…way fewer cars” instead of “…way less cars” as is today’s way. 🙂

  25. GrueBleen
    June 21st, 2016 at 17:05 | #25

    @GrueBleen

    And by way of a PPS, you may enjoy this discussion of how to get a wise and effective decision together with the ruthlessness to implement it 🙂

    http://crookedtimber.org/2016/06/17/the-sandworm-solution/

  26. Nick
    June 21st, 2016 at 19:13 | #26

    Cheers, GrueBleen. I think I misread your sarcasm, and interpreted you as being dismissive/contemptuous of their comments, rather than taking them on board as fairly reasonable responses.

    I was unfamiliar with the concept of progressive punishment until now (still always learning something new at JQ’s blog!) so perhaps got a bit carried away with the idea.

    I still think it’s fine in principle, and the concerns you have don’t bother me so much. The main obstacle I see is how you go about making federal income tax records available to state-based law enforcement.

    https://en.wikipedia.org/wiki/Day-fine

    The person who is punished with a fine is responsible for giving accurate information concerning their income. Lying about one’s income (Finnish: sakkovilppi, Swedish: bötesfusk) is a crime punishable with a fine or up to three months in prison.[12] The police can, however, access the taxation data of Finnish citizens and permanent residents via a real-time datalink, so the chance of lying successfully is minor.

    Constitutional issues aside, I wouldn’t want to guess at the cost of setting up that real-time datalink in Australia. Conceptually, there’s not much to it. But we don’t do that kind of thing cheaply and effectively here in Australia, where anything IT/tech related seems to be a recipe for squander.

  27. GrueBleen
    June 22nd, 2016 at 09:23 | #27

    @Nick

    Ah well, sarcasm is as sarcasm does, perhaps, but mostly it’s without really evil intent.

    Anyway, good luck with your campaign but remember that “progressive punishments” such as fines only really work properly for the middle range of incomes: people who earn enough to be able to pay a moderately substantial fine but not wealthy enough to hide a very significant part of their income and/or assets.

    Also keep in mind the distinction between revenue earning fines (in other words, a kind of voluntary ‘taxation’/lifestyle charge) and those fines (or other actions) that are genuinely intended to inhibit or hopefully prevent certain behaviours. For instance, a fine for parking for three hours in a two hour zone is just a lifestyle expense, but a fine for serious speeding on a public road – which may, and often does, end in death – should be aimed at stopping that kind of behavior. And no, it doesn’t really work.

  28. Moz Inoz
    June 23rd, 2016 at 14:04 | #28

    You really do need to join the dots with rich tax evaders. If the ATO+plod can go after drug dealers for proceeds of crime using the “show us how you can afford that on your legitimate income” I don’t see why they can’t do the same to Kerry Packer. Especially since they should reasonably be able to say “here, use this legal aid lawyer”… and insist that that was the only legal representation he was allowed, since that was all he could afford 🙂

  29. Troy Prideaux
    June 23rd, 2016 at 14:43 | #29

    @Moz Inoz
    The problem is (correct me if I’m wrong) the rich fat cat evaders are “legally” (careful not to use the word “legitimately”) claiming losses on things like accounting costs and probably even legal costs. Losses on this, that and whatever they can claim on. Claiming losses on all these offshore services (which they’re probably supplying themselves) so their effective income after the claims is bugger-all. All the spondulas is being consumed by these offshore services operating in tax havens. So, if these offshore service providers (a corporate entity with a cryptic ownership connection to the individual) decides to purchase a $200M yacht from, say Spain, with all their low taxed profits, then who can legally do anything about it without proving the link from the individual to the service provider?

  30. Moz Inoz
    June 23rd, 2016 at 19:35 | #30

    Troy, it gets very complex very quickly because Australia is proud to support offshore tax havens, very definitely. I would be quite happy to see a great deal more “either you own it, and you can show how you can afford it; or you’re hiring it and the person that owns it is paying GST on it”. But currently our tax system s designed very specifically so that the 1% pay sod all tax, and we can’t really expect to fix that as a minor side-effect of making fines more progressive.

  31. Latebowl
    June 23rd, 2016 at 23:59 | #31

    Im surprised to see such a focus on the potential problems associated with collecting fines from zero income wealthy tax evaiders. Are we really expecting a petty crime wave from wealthy individuals or is this just a case of comentators’ popular virtue signalling? By far the greatest contribution to petty crime comes from the lower socioeconomic status individuals and this is why the idea is unworkable. Many petty criminals have no legitimate income to speak of and have no plans to change that. Their welfare is often tied to dependent children (which no government will touch) and any remote thought they may have of one day re-entering the workforce will be quashed when they realise a large portion of their hard earned minimum wage will go straight to paying down a string of income contingent fines.

  32. Moz Inoz
    June 24th, 2016 at 07:32 | #32

    @Latebowl

    The great number of *convictions* come from the lower classes, definitely, but observation suggests that this is due to what the legal professionals call “improper influence”, or more charitably, the hassle of attaching a petty conviction to someone who can afford a proper defense. Look at the difficulty the police have had in Sydney trying to convict a QC even after he was found passed out in his car after crashing it (search impossible, too many lawyers specialising in getting criminals off that particular offence… which makes my point too, I think)

    This is also part of what is being paid for by the use of private schools. When someone from an “elite” school commits rape or uses drugs the school will shield them from the law and treat it as an internal matter as far as they can. They will generally go to quite some lengths to do so, and “encourage” the victim(s) to quiet down via a combination of threats and bribery that would do the Mafia proud. But the same problem at a poor school is often an excuse to send the drug squad in an convict the little criminals.

  33. GrueBleen
    June 24th, 2016 at 09:57 | #33

    @Latebowl

    ” Are we really expecting a petty crime wave from wealthy individuals …”

    No, we’re expecting a continuing set of very fine-worthy offences from wealthy individuals such as tax evasion. Perhaps you’ve heard of that ?

    Besides, the poor are used to being gaoled for non-payment of fines, aren’t they ?

  34. June 24th, 2016 at 11:01 | #34

    @Moz @GrueBleen @Nick
    We have invented and prototyped a software system to implement swarm intelligence. The Software will be provided to the Commons as Open Source Software. I am approaching appropriate organisations to trial the approach. It just so happens that I am talking to a regulator about Law Enforcement. The approach could implement fines tailored to discourage speeding by reporting fines in an anonymous way taking into account the context of the offense. The community can help evolve adequate punishments. Individuals identify themselves and provide appropriate context when they commit an offense. The individual does not identify themselves to the community only to Law Enforcement. However, the community can see the punishments the context and the rationale for the punishment. The idea is to experiment with different approaches to see which are the most effective.

    First we have to start with identity. The identity system allows the individual to provide evidence of who they are through the use of swarm intelligence. That is, the individual proves they have existing relationships with others and the others confirm those relationships. This swarm intelligence provides the person with an identity.

    https://kevinrosscox.me/2016/06/22/an-electronic-identity-system-with-law-enforcement-by-design/

  35. GrueBleen
    June 25th, 2016 at 11:07 | #35

    @Kevin Cox

    A short but intense read, Kevin. Probably too short for me to claim that I even managed to bring into my consciousness everything that you thought you were conveying.

    But one small bit did intrigue, where you say: “An approach to Law Enforcement is for citizens to know their transactions were lawful. If asked they should be able to prove they have complied with all relevant laws.”

    I thought that was kinda edging towards a repudiation of “innocent until proved guilty” in the sense that I’ve always thought that, if law enforcement has a problem, they have to be able to prove my guilt rather than me, even if aided by Swarm Intelligence, having to prove my non-guilt.

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