Examples of available data

Since its launch in November 1997, the Commonwealth Government has allocated $516m to the National Illicit Drug Strategy, for a range of supply-reduction and demand-reduction measures. Source: Commonwealth Department of Health and Aged Care website http://www.health.gov.au/pubhlth/strateg/drugs/illicit/index.htm In 1992, the tangible and intangible costs of illicit drug use were estimated to be $1,683.6m. Of this: $758.0m resulted from lost productivity, both paid and unpaid, $450.6m was spent on law enforcement, $42.7m was spent on health care, including medical services, nursing homes and hospital bed days. Source: Collins, D. J. & Lapsley, H. M. 1996, The social costs of drug abuse in Australia in 1988 and 1992, National Drug Strategy Monograph Series No. 30, Commonwealth Department of Human Services and Health, Canberra. From January to March 2000, information supplied by covert police units and police informants indicated the price of one tablet/capsule of ecstasy ranged from $15-$25 in Tasmania to $50-$60 in Western Australia. Source: Australian Bureau of Criminal Intelligence 2001, Australian Illicit Drug Report 1999-2000, ABCI, Canberra.

6.1 Introduction

There are considerable economic costs associated with illicit drug use and its consequences on the Australian community, borne by individuals, businesses and governments.

As well as affecting the personal lives of individuals, illicit drug use has an impact on many aspects of Australian society, including individual and community health; family and community functioning; crime and violence; and the social cohesion of our society. In economic terms this translates to an additional burden on the community. For example, the re-direction of community funds towards the criminal justice system and corrective services to address crimes associated with drug use means that these funds are unavailable to be used elsewhere. Another consequence to the Australian economy is a decrease in economic resources available for productive use as a result of ill-health or death among young adults. The economy is further affected by the impact on individuals and their families who may then need to rely on government or charitable assistance to obtain relief. Additionally, the presence of an underground illicit drug economy results in changed financial flows within society and a redistribution of wealth between groups.

It is not possible to ascertain the exact total cost of illicit drug use to the Australian community. Some components can be measured directly, such as government expenditure specifically sourced from the National Illicit Drug Strategy, but many of the social costs borne by the community, such as the extra cost of welfare, health and law and order services, can only be estimated. In addition, a number of costs associated with illicit drug use are not quantifiable, such as pain and suffering resulting from a reduced quality of life.

This chapter describes the sources of data on actual and estimated costs associated with the use of illicit drugs. However, many of the data sources outlined in other chapters of this publication can also contribute to this type of analysis.


6.2 Data sources

6.2.1 Costs to the community

No data are available which will directly measure many of the costs to the community of illicit drug use. As a result, complex estimations are the only available sources of information. A number of research papers have been published which contain estimates of the costs of illicit drug use.

The social costs of drug abuse in Australia in 1988 and 1992 (Appendix 1, A1.25)

David Collins and Helen Lapsley (1991, 1996) have undertaken two studies which provide comprehensive estimates of the economic and social costs of illicit drug use in Australia. Results from these two studies have been published by the Commonwealth Department of Health and Aged Care (DHAC) as part of its National Drug Strategy series of monographs.

The estimates of the costs to the Australian community, calculated for the years 1988 and 1992 respectively, are based on comparisons between a hypothetical population in which no-one uses illicit drugs and the actual population with 'known' illicit drug behaviours. For each year studied, the estimates give the value of net resources which are unavailable to the community for consumption or investment purposes as a result of the effects of past and present illicit drug use, plus the intangible costs imposed by this use.

In their calculations, Collins and Lapsley attempted to identify and quantify all possible social benefits and costs of illicit drug use. Private benefits and costs were excluded. The issues considered included: the costs associated with reduced productivity in paid and unpaid work; health care costs of medical services; hospital and nursing home bed days; law enforcement costs; and market turnover.

A number of costs and benefits were identified which could not be measured because the impact of illicit drug use on these issues was unknown. These non-quantifiable costs included: welfare; ambulance; morbidity and mortality among victims of illicit drug users; crime (other than law enforcement costs); property damage due to illicit drug use; and drug-induced accidents. Consequently, these unknown costs could not be included in their estimate of total costs of illicit drugs.

In addition to the cost estimates, Collins and Lapsley distinguished between tangible costs, such as health care and production costs, and intangible costs, such as value of loss of life. They identified avoidable costs as being those costs amenable to public policy and behaviour changes, and estimated the proportion of costs borne by individuals, businesses and governments. The authors also estimated the costs of abuse of tobacco and alcohol in Australia, allowing for comparison between the costs of illicit drugs and those of other drugs of concern.

During 2001, Collins and Lapsley have undertaken an enhanced estimation study for 1998, applying a similar methodology and using the latest available data. More accurate cost estimates are expected from the better information now available. For example, more detailed costs data are now available for police, the courts and corrective services, in the Reports on Government Services issued by the Productivity Commission's Steering Committee for the Review of Commonwealth and State Service Provision.

Other sources

In 1989, the Parliamentary Joint Committee on the National Crime Authority investigated the scope and nature of trade in illicit drugs, the efficiency of law enforcement strategies in suppressing this trade, the social costs of the policy of prohibition, and whether prohibition was the most effective means of dealing with the problem. Their findings, published in the Cleeland Report, Drugs, Crime and Society (Parliamentary Joint Committee on the National Crime Authority,1989), include an estimate of expenditure by governments to enforce the laws against certain drugs.

Robert Marks has written a number of research papers on the cost of illicit drug use. In his article What Price Prohibition? An Estimate of the Costs of Australian Drug Policy (1991), Marks expanded on the Cleeland Report list of expenditures on law enforcement which resulted from illicit drug use. He also estimated the net revenues generated by the black-market exchange of heroin, cocaine and cannabis in Australia in 1988-89. In Cannabis laws: an analysis of costs (1994), Marks updated to the financial year 1991-92 his previous estimates of expenditures on law enforcement. These estimates of law enforcement costs were employed by Collins and Lapsley (1991, 1996) in their estimate of the overall cost of illicit drug use.

Estimates of hospital costs associated with illicit drug use can be obtained from the Australian Institute of Health and Welfare’s National Hospital Morbidity Database (Appendix 1, A1.19), a collection of data from patient records kept by Australian hospitals. It contains information for the financial years 1993-94 onwards including diagnoses, procedures undergone in hospital and external causes of injury and poisoning, as well as information on demographic characteristics and length of stay. For each hospitalisation, the database contains estimates of the cost of hospital care, based on the estimated national average costs for the relevant diagnosis related group.

6.2.2 Government expenditure
Some government funds are dispensed specifically for illicit drug programs and are reported in this way. However, much Government expenditure related to illicit drug use in the community is spent as part of the overall budget in other areas and its drug-related component can only be estimated. These estimates are covered in the discussion in the previous section 6.2.1 Costs to the community.

The following section discusses only sources of data on government expenditure targeted specifically at reducing the use of illicit drugs and harms resulting from this use.

Government funds for illicit drug programs have been allocated through various government strategies and campaigns over the years. Since 1997, the Commonwealth Government has allocated expenditure aimed directly at reducing demand and supply of illicit drugs through the National Illicit Drugs Strategy. This strategy falls under the broad guidance of the National Drug Strategy and supplies funding to a range of measures covering law enforcement, education and treatment, rehabilitation, and counselling. Details of how funds are allocated can be obtained from the DHAC website http://www.health.gov.au/pubhlth/strateg/drugs/illicit/index.htm.

A report prepared for the Ministerial Council on Drug Strategy in 1997 by Single and Rohl, The National Drug Strategy: mapping the future. An evaluation of the National Drug Strategy 1993-1997, includes the actual expenditure by the Commonwealth, State and Territory governments on illicit drug programs. It lists the actual expenditure on each cost-shared project, together with a brief description of the project. This information is derived from applications to the Commonwealth for cost-shared funding through the National Drug Strategy.

From 1995 to 1999, the Alcohol and other Drugs Council of Australia (ADCA) (Appendix 2, A2.2) published an annual paper on government expenditure on drug programs and services, the latest being Drugs, Money and Governments 1997-98 (Crosbie & McNiven, 1999). The paper contained data on Commonwealth, State and Territory Government expenditure specifically for drug programs and services through health departments and drug authorities. However, figures were for all drug programs and services, with no distinction between alcohol, tobacco and other drugs, including illicit drugs, and the comparability of data between States was problematic. This paper also included the results of a survey in which workers in the alcohol and other drugs field were requested to rate the performance of their respective State or Territory Government in relation to the adequacy of funding for drug issues. The results of similar surveys in more recent years have been made available through an ADCA newsletter.

DHAC has recently commissioned a health economic study calculating the return on investment from needle and syringe programs across Australia. It will incorporate calculations on costs and savings to health care systems from needle and syringe programs over the last 10 years.

6.2.3 Illicit drug economy

Given the nature of the activity, little concrete data are available on the size of the turnover associated with illicit drugs. Current data concerning the illicit drug market are available from the following sources.

Australian Illicit Drug Report (AIDR) (Appendix 1, A1.1)

The Australian Illicit Drug Report (AIDR) is produced annually by the Australian Bureau of Criminal Intelligence using data extracted from databases maintained by Commonwealth, State and Territory law enforcement agencies (see 5.2.1 Drug offences). The AIDR contains information collected from each State and Territory police service regarding the street price paid for illicit drugs. The prices in each State and Territory for each quarter of the year are published by weight and form for heroin, cannabis, cocaine, amphetamine and ecstasy.

The AIDR also contains information on suspicious transactions which are identified and reported to police by the Australian Transaction Reports and Analysis Centre (AUSTRAC). Income from illicit drugs is often laundered, that is, passed through a series of transfers so that it appears to be legitimate income. AUSTRAC, a Commonwealth funded anti-money-laundering regulator and specialist financial intelligence unit, monitors financial transactions and reports suspiciously large or frequent transactions to police. However, not all transactions reported by AUSTRAC will be related to illicit drugs.

Illicit Drug Reporting System (IDRS) (Appendix 1, A1.10)

The Illicit Drug Reporting System, coordinated by the National Drug and Alcohol Research Centre, monitors the price, purity and availability of illicit drugs in most of Australia's capital cities. Information is gained from an annual interview of injecting drug users and is made available in quarterly bulletins and annual publications. Further details about the Illicit Drug Reporting System are available in 2.2.1 Major sources of data.

Drug Use Careers of Offenders (DUCO) (Appendix 1, A1.8)

This program of prisoner surveys, conducted by the Australian Institute of Criminology, includes questions regarding prisoner's expenditure on illicit drugs in the six months prior to arrest. An estimate of the costs of drug-related property crime will be derived, from the self-reported income from fraud, stolen cash and the resale of stolen items, as well as the sale of illicit drugs.

Other sources

As part of their assessment of total costs, Collins and Lapsley (1991, 1996) calculated the market turnover of illicit drugs in Australia in 1988 and 1992 (Appendix 1, A1.25). This estimate built upon previous work done by Marks (1992) and the Cleeland Report (Parliamentary Joint Committee on the National Crime Authority, 1989).

In the paper, Running the Risks: Heroin, Health and Harm in South West Sydney (1998), Lisa Maher and her colleagues produced an estimate of the income of heroin users in Australia derived from illegal activities. This was based on the findings of a long-term study of income generation among 202 young heroin users in south-west Sydney. Sources of income reported by respondents included theft and burglary, illicit drug market activities and prostitution. The publication reports the incidence of these activities, as well as the proportion of total income derived from each source and average weekly earnings from each source. Their findings were generalised to obtain a national estimate, based on the estimates of the size of the population of regular heroin users in Australia detailed by Hall in The demand for methadone maintenance treatment in Australia (1995).


6.3 Data issues

The extent to which illicit drug use impacts on many community services can only be estimated indirectly. For example, current administrative systems cannot separately report on police and court resources expended on illicit drug work as distinct from other work. Estimates have been calculated using related data, such as the proportion of offenders whose most serious offence is drug-related. Because this data does not take into account secondary illicit drug offences, nor other offences associated with the use of an illicit drug, these cost estimates under-represent the actual law enforcement costs resulting from illicit drug use.

When estimating costs, widely different figures may be calculated for the same item because they are based on differing assumptions. For example, in 1992 Marks estimated the value of property stolen by heroin users in Australia during 1988 assuming there were 30,000 frequent heroin users. Maher and her colleagues (1998), used an estimate of more than 49,000 regular heroin users, to calculate a much higher cost.

Other differences result from variations in how items such as illicit drug turnover are defined and calculated. For example, Marks (1991) estimated the turnover of illicit drugs using the street value of the drugs. However, Collins and Lapsley (1991) considered these figures were likely to overestimate the true value of the market. They argued that a high proportion of the street value of illicit drugs is a return for the risks associated with the street trade, and it is unlikely that many resources used in the illicit drug trade would, in their alternative uses, command the same rates of return.

There have also been different definitions of scope among the sources of data with regard to the economic impact of illicit drugs in Australia. For example, although expenditure on Commonwealth, State and Territory government drug strategies is included in this chapter, Collins and Lapsley (1996) did not consider this to be a cost of illicit drug use per se, but rather, a cost of public policies designed to reduce illicit drug use. Thus, it was not included in their estimate of the total cost of illicit drug use in Australia, although they did provide figures for expenditures on government drug strategies.


6.4 Data gaps

A major shortcoming of data sources on the economic impact of illicit drug use is the lack of up-to-date information. The most comprehensive source of information on the costs of illicit drugs, The social costs of drug abuse in Australia in 1988 and 1992 (Collins and Lapsley, 1996), is based on data from 1991-92. Given the trends of illicit drug use indicated from various data sources since then, it is likely that the cost estimates from this work are no longer appropriate. During 2001, Collins and Lapsley are working on filling this gap, looking at the social costs of drug abuse in 1998, the latest year for which pertinent information is available.

Data about the prevalence of illicit drug use, in conjunction with data on the crime, health and community issues associated with it, are used to estimate the economic impact of illicit drug activity. Thus the gaps and limitations of those data sources, as discussed in other chapters of this publication, are relevant to any estimate of costs. For example, it is not possible to estimate the cost of ambulance services associated with illicit drug use because national data are not available on how often ambulances attend overdoses or accidents resulting from the use of illicit drugs.

There are many intangible costs to which it is difficult to assign a monetary value. These include changes of behaviour in the community because of concerns over unsafe recreation areas or fear of street crime; defensive costs against theft such as crime prevention measures and insurance; and costs of corruption.

Although illegal goods and services such as illicit drugs are purchased in the market and, conceptually, should be regarded as part of production, they are not included in the Australian National Accounts. A major reason for this is the unavailability of adequate data to produce reliable estimates of their value. The sort of information that would be required relates to the entities engaging in production, the value of production, expenditure patterns and income generated. For similar reasons, the trade in illicit drugs is not included in Australia's imports and exports statistics, nor in the balance of payments.

Previous Page

Next Page