It is January, still the school holidays, and I can’t bring myself to read Reserve Bank background papers on bank capital issues (although I recommend Kate MacNamara’s piece on Stuff, drawing on some of those papers) so I thought I might do a post on an off-topic issue –  fines – that has bugged me for a long time but which I didn’t used to be free to write about (while my wife was at the Ministry of Justice).

There are two things that bother me about our system:

  • the way that maximum fines, set out in all manner of bits of legislation, are not indexed for inflation,
  • the way that fines are not systematically varied with the financial means of the offender (unlike the financial effects of a prison sentence or even community service).

As is right and proper, Parliament sets maximum fines for various offences when the legislation creating the offence is passed (or amended).    Legislation isn’t often revisited –  parliamentary sitting time is scarce –  and some legislation creating offences will have been passed very recently but some was passed decades ago. But inflation is thief of the value of money, particular as a reasonable amount of time passes.   A maximum fine set at, say, $10000 in 1990 would have to be set at about $18000 now just to be the same in real terms, and even that wouldn’t keep pace with real income gains.

For offences where there is both an imprisonment and a fine option open to the judge the problem is particularly egregious.  Take a piece of legislation passed 30 years ago that provided for a year in prison or a $5000 fine.   Parliament presumably set those two numbers with some sense of the relative value of time and money 30 years now.  But time has got more valuable and money has got less valuable.

Back in the days when I first became aware of this issue, perhaps there was an argument that in future it wouldn’t matter much: the Reserve Bank was required to target 0 to 2 per cent annual inflation, and there was a consensus that there was an upwards bias in the CPI of perhaps as much as 0.5 to 0.7 per cent per annum.   But over time any biases have been reduced as SNZ improved the index, and the inflation target was revised upwards.  As a matter of policy, we ask the Reserve Bank to reduce the purchasing power of money by around 2 per cent per annum.  In 36 years, the real value of any nominal sum (eg a pre-set maximum fine) will halve.

Inflation has been a systematic issue for decades and yet nothing has been done to index our maximum fines for inflation.     Sure, formal indexation isn’t a big thing in the private sector (although we –  sensibly enough –  index our welfare benefits), but (a) there are few nominal contracts that last anywhere near as long as the gap between Parliament reviewing and updating penalty levels, and (b) citizens have no redress or avoidance mechanisms –  the fixed nominal fines are Parliament exercising its sovereign power and we (and the judges for that matter) just have to live with it.  Offenders cannot be fined as heavily –  in real purchasing power terms –  as Parliament intended in passing the law.

This issue should be relatively easy to fix, and should not be enormously controversial if some MP or government were to pick it up.    For all new legislation/fines, the maximum fine could be set in terms of “fine points” (eg a $10000 maximum fine might be expressed as 10 fine points where a fine point is defined as equal to $1000 as at (say) 31 December 2019).     The value of those fine points in today’s dollars could be adjusted every quarter with the CPI, with the resulting nominal values readily available to anyone on a table maintained on the Ministry of Justice website.  For existing legislation (and fines) where fines have been set in nominal dollar terms,  once the date that fine came into law in known the nominal value of the fine could be adjusted each quarter (much the same table) with changes in the CPI.   If one wanted to be more far-reaching –  and I would –  one could index fines to changes in some index measure of wage rates.  That would maintain better the intended relativity between the cost to the offender of a fine vs that of a prison sentence. But just addressing the inflation indexation point would significantly improve the situation as it stands now.

The bigger issue –  and frankly the one that exercises me more –  is what appears to be a fairly deep injustice that fines are not consistently or systematically adjusted for the financial means of the offender.    Consider a sentence for a particular offence that would have someone imprisoned for a year.   Whether you are on the minimum wage or earning $250000 a year you are out of the private labour market for a year, unable to earn more than the small amount prisoners get paid for their labour.    A prison sentence costs (in dollar terms) a higher income person more than a lower income person. But a fine is a quite different matter.  For someone on the minimum wage, a $5000 fine might be almost ruinous while for the person earning $250000 they’d pay it readily enough without materially constraining any other choices.  Many cases in our court system result from unpaid fines.  Sometimes that will be pure choice by the offender, but not always by any means.

To be sure, under the Sentencing Act judges may decide not to impose a fine if they believe an offender does not, or would not, have the means to pay it.  But that is (a) a discretionary choice of a particular judge, (b) does not seem to allow (formally) a diminished fine (rather than simply not levying one at all), and (c) does not, of course, allow for a higher fine –  above the statutory maximum –  for a higher income (or wealthier person).  And as an old piece of Ministry of Justice research I found put it, drawing on a survey of judges

Lack of adequate information, particularly regarding the means of the offender, was considered to be an important factor limiting Judge’s ability to adjust the amounts of fines imposed.  About two-thirds of the Judges said they would never or only seldom ask for a written statement of means.  Time pressures were clearly one of the main reasons why this was the case.

Perhaps things have changed since then, but the basic issue hasn’t.  A nominal dollar penalty falls far more heavily on a poor person than on a wealthier person.   That probably offends most canons of justice  –  including perhaps the idea that “from whom much is given, much is expected” –  and is quite inconsistent with the way we treat imprisonment (where time is the standard unit, not dollars).

It would seem to me to be fairer –  albeit more complex to set up and administer in a fair and equitable way – if Parliament were to specify a maximum fine in terms of units of time equivalent, which would be translated into dollar terms for a particular offender by reference to the income and/or wealth of that individual (or company, where the fines apply to corporates).  One could think of a (relatively minor) offence that might have a maximum fine of seven days.     Subject to some de minimis (so having no income doesn’t enable you to escape punishment altogether, or leave prison as the only option), the specific amount an offender could be liable to face would be adjusted by income: for a student earning $100 a day (say) it would be a $700 fine, while for a highly-paid public servant earning $1000 a day, it would be a $7000 fine.

This isn’t a novel idea at all.  It is the way they do things in Finland for at least some offences (and have apparently for a long time).  This article notes various other examples, including the UK, where there is an income-adjustment formula for traffic fines.  And here a scholar looks at the possible constitutional obstacles to such a system in the US and concludes that they are not insuperable.  In our political system there are, of course, no constitutional obstacles –  Parliament can pretty much do what it wants –  but the real issues might be whether the additional administrative costs were worth it, and how severe the evasion opportunities might be.  Then again, when we sentence people to prison we have to go to a great deal of effort and expense to keep them there.

Of course, one might deal with this by having very much higher maximum fines and allow judges lots of discretion to reduce the actual fine according to the means of the offender.   Judge love discretion, and need to have some, but it isn’t obvious why a formal linked to wealth/income would not be more transparent and predictable and, frankly, fair.

Justice would be better served if potential fines were calibrated to the income/wealth of the offender, in much the way they (effectively) are for custodial or community service sentence –  where time (the common unit) is much more financially valuable to a (erstwhile) high income person than to a low income person.