Prisoners who earn income while behind bars may have their pay deducted to pay for their board and other bills such as child support, under a new Government bill.

The Corrections Amendment Bill, introduced today, is in part a response to convicted murderer Phillip John Smith, who has been operating a company selling electronics since 2008 from inside Auckland's Paremoremo Prison.

In 1995 Smith stabbed to death the father of a boy that Smith had sexually molested. He later harassed the family with calls made from prison.

Earlier this year there was nothing stopping a prisoner from undertaking any legitimate business while serving their sentence.

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Smith's case was reviewed and Corrections made changes in August, including requiring an inmate to declare on arrival any self-employment activity.

Any job also needed to have a third-party managing the business.

This bill would enable the state to recoup some of the $91,000 a year it costs to house a prisoner.

Currently Corrections can take 30 per cent of a paycheck from a prisoner's work-to-release programme, up to $269 a week.

"This law change, should it go through, would enable Corrections to charge any prisoner who is earning income in the same way, whether it be through self-employment or an interest in farms or commercial property,'' Corrections Minister Judith Collins said.

The bill would not be passed until the next parliamentary term, she said.

"It would be an irresponsible Parliament that didn't think that prisoners in those situations should be contributing to the vast expense in keeping them locked up.

"If they're using time in prison to make money, why wouldn't we expect the taxpayer to be reimbursed? They get a free office, free board, free food.''

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Ms Collins said she was not against prisoners working because it helped rehabilitation.

The bill would leave it in the hands of the prison manager and chief executive to decide if the work was appropriate.

"Clearly it would have to be something that was legal,'' Ms Collins said.

The Inland Revenue Department would also be able to deduct money from prisoners' wages for child support bills.

Ms Collins said she did not know how many prisoners this would affect, but "the vast majority of our 8500 prisoners are parents''.

The bill would also deal with discrepancies in the law around strip searches and prisoner health services, and to enable private prisons to conduct their affairs appropriately.

The Administration of Community Sentences and Orders Bill, which was also introduced today, would plug gaps in the community probation services.