Article: Next cab off the rank: an equitable taxi service

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Article is about Victoria, but relevant across the country.

Next cab off the rank: an equitable taxi service

Date
    July 25, 2012
Category
    Opinion

Ross Gittins
The Sydney Morning Herald's Economics Editor

Does changing the government make much difference? Both sides of politics always assure us it will. But judging by the infrequency with which we do it, we seem doubtful.

At the state level the national swing from Labor to the Coalition is almost complete, providing a good opportunity to test the question. And a good test is the regulation of industry.

Despite both sides' protestations of undying concern for the welfare of ordinary voters, it gets harder to avoid the suspicion that governments regulate industries for the benefit of the businesses rather than their customers.

Take the case of taxis. We've been dissatisfied with the service provided by taxis for many a moon. They're expensive, but often don't offer good service: they're too hard to find at certain times, they don't turn up or take far too long to arrive; too many drivers don't know where to go, or are unfriendly.
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But the outgoing Labor governments did far too little to improve the position. It got so bad in Victoria the Baillieu government promised action and appointed Allan Fels, the former chairman of the Australian Competition and Consumer Commission, to conduct an inquiry.

The taxi industry is highly regulated by state governments. What's the goal of this regulation? It's supposed to be to ensure we're provided with a safe and reliable taxi service at a reasonable price. In practice, the goal has evolved into the protection of a highly lucrative financial investment, the taxi licence plate.

Since about the time of the Depression, governments have sought to control the number of taxis by issuing a limited quantity of licence plates. Initially, and for many years, these licences were issued free to people wanting to drive taxis.

Because the supply of licences was limited relative to the demand for them, licence plates became valuable in their own right. They exist in perpetuity, and people who'd been given one by the government were able to sell it to someone else.

That someone may be a person who wants to drive a taxi, but doesn't have to be. And ownership of taxi plates doesn't imply ownership of the car to which those licence plates are screwed. You can ''assign'' (rent) the plates to a taxi operator for a fee, who buys the car and puts it on the road. Operators may drive the car themselves, or they may get others to do the driving.

Thus did the taxi licence plate transform into a valuable financial investment, with an active market in their purchase and sale. According to Professor Fels's interim report, the value of plates has been rising for years and Melbourne plates now change hands for up to $490,000 a pop.

Licences are assigned to operators for a fee of about $35,000 a year, thus yielding a direct return to their owners of about 7 per cent. Allow for capital gain and the overall return rises to about 16 per cent a year.

Not a bad investment. Now get this: according to the Fels report, in 1985 only about 4 per cent of Victorian taxi licences had been assigned to others. By 1998, about 45 per cent of metropolitan licences had been assigned. And by December last year it was up to about 70 per cent.

Because assignment fees are so high, not enough income is left for taxi operators and even less for drivers. Taxi fares are controlled by the government and the need to pay drivers more - they get an average of about $13 an hour, according to Fels - is often used to justify fare increases.

But every time fares increase so do the assignment fees charged by the licence owners, justifying a further rise in value of licences.

Fundamentally, however, what causes the rising value of licences is their growing scarcity relative to demand. Who is it that limits the number of licences on issue? The government. Who does this benefit? The owners of licence plates. The industry is being regulated largely for the benefit of absentee landlords, so to speak.

Taxi drivers get a terrible deal. They generally get 50 per cent of their take, but they're not employees and have to bear many costs themselves. They get no workers compensation cover, no holidays or superannuation and have to pay the goods and services tax.

Is it any wonder the quality of drivers is often poor, turnover is high and it's hard to get recruits? And yet most of our complaints about taxis relate to the performance of drivers.

Fels's key proposal in Victoria is for the government to issue new taxi licences to any qualified person for a fee of $20,000 a year. New licences would not be transferable and issued only to owner-drivers.

This would make it easier for drivers to become owners. It would force the existing licence plate owners' assignment fee down to $20,000 a year, still leaving them a reasonable return, but lowering the capital value of their plates to about $250,000.

Taxi operators would benefit from the lower assignment fees and this would allow the drivers' share of their take to be raised to 60 per cent. This, in turn, would justify making greater demands on drivers, including requiring them to pass a more stringent street and location knowledge test.

Now you see why licence-plate owners are opposing these reforms so vigorously. We'll see if Ted Baillieu stands up to them with any more fortitude than his Labor predecessors.

The specifics of taxi regulation in NSW differ somewhat from those in Victoria but the general principles are much the same - as are the complaints from taxi users. Will Barry O'Farrell try harder than Labor to fix things? So far he hasn't even called for a report.

Ross Gittins is the economics editor.

Read more: http://www.brisbanetimes.com.au/opinion/society-and-culture/next-cab-off-the-rank-an-equitable-taxi-service-20120724-22n3z.html#ixzz21c6AVH25