Today's policy is a significant departure from that approach and focuses on rehabilitation.
Seymour said the cost of crime and the prison system was "running away", largely because of reoffending that saw 48 per cent of prisoners reoffend once they were released into the community.
"A large chunk of the prison population simply lacks the skills to lead normal, productive lives. Sixty to 70 per cent or prisoners lack the functional literacy required to read a tenancy agreement, an employment contract, or even the road code."
Letting prisoners earn a reduction in jail time would incentivise them to upskill and eventually lead a normal life outside of prison, he said.
The policy would not apply to the worst violent or sexual offenders, and Seymour said it wouldn't help white-collar criminals study for diplomas or degrees.
"As seen in similar programmes overseas, this policy would save taxpayer money through reduced sentences and lower rates of recidivism," Seymour said.
"We would also scrap the red tape that makes it difficult for people to volunteer as mentors in prisons."
Almost 65 per cent of the men and women in prison fall below NCEA level one literacy and numeracy.
A keynote speaker at the Act conference in Auckland's Orakei is former Labour Party president Mike Williams.
Williams is now the chief executive of the New Zealand Howard League for Penal Reform, which runs literacy programmes that aim to get prisoners to a competent reading level, enabling them to read books to their children, take driver tests and have a better chance of finding work when they are released.
Last year Seymour joined Williams and Bill English at a prizegiving ceremony at Rimutaka Prison, where inmates who had completed the league's literacy programme and learnt to read spoke about what it meant to them. Tutors who volunteered in the programme also spoke.
"He came to me afterwards and said, why aren't more prisoners doing these courses," Williams said. "I said, well there's just not the demand. And he said, how would you create the demand?"
Seymour then developed the policy, which Williams said the Howard League strongly supported.
"It is obvious when you think about it, but nobody had thought about it...when I mentioned the idea to Ray Smith, the head of Corrections, he thought it was a very good idea.
"I think Labour will back it, obviously I will talk to them about this...I think it will get uniform support, across the board.
"There is mileage to be tough on crime. But there's no evidence of that in the party vote, is there? At least for Act. I think being smart about crime is probably the way to go."
One issue would be if jails had the facilities to enable programmes, Williams said, but that could be overcome. Prisoners would be lining up for the scheme.
"What we know is that every one of them wants to get out of jail. It is not a motel. They don't want to be there - so a possibility of a shortened sentence is a very strong incentive."
Williams said the policy could save the country millions of dollars, given it cost about $2000 a week to keep someone in jail. He said it could cut reoffending by as much as 50 per cent.
In October, the Government announced plans to cope with a booming prisoner population including a 1500-bed prison on the current Waikeria Prison site in Waikato.
Those changes will hit the Government's books by an extra $2.5 billion over about five years.
