Melbourne metropolitan taxi licence values, 1981 to 2012 (source: Victorian taxi industry inquiry)
Melbourne metropolitan taxi licence values, 1981 to 2012. A licence in Melbourne was worth circa $150,000 in 2015 (source: Victorian taxi industry inquiry)

The Victorian government announced yesterday it will deregulate the hire-car industry and effectively treat taxis and ride-share services like Uber the same. The existing taxi licencing regime will be replaced with a single registration system for all providers.

The main components of the plan are:

  • A $378 million fund to compensate taxi licence holders up to $100,000 for the first license and $50,000 for a second license; and $50 million to provide hardship relief.
  • All service providers will be charged a levy equivalent to $2 per trip to compensate taxi license holders and pay for the administrative transition to the new arrangements. (1)
  • Fares will be deregulated.
  • $25 million to improve the mobility of travellers with a disability and appointment of a Commissioner for disability services.
  • All drivers must be accredited by the Taxi Services Commission which will include passing police, medical and driving history checks.
  • Rank and hail work only open to those providers that meet stringent requirements including cameras and fare meters.

I don’t think there’s much doubt that the new arrangements are more about the government finding a political compromise with the taxi industry than advancing the welfare of travellers, but this looks like a great move – it finally acknowledges the reality of technologically induced change.

It’s impossible to be sure about what the government plans to do though. It’ll be implemented over two years and so far all we’ve got to go on is the Premier’s media release and his assurance that the government is “levelling the playing field for the whole industry while ensuring consumers have safe and reliable access to transport services.”

I think there are some key areas where the government needs to explain its reasoning better, provide the public with supporting evidence, and be willing to reconsider the best course of action.

First,  the government has brought a taxi lens to the policy. The new regime will be managed by the Taxi Services Commission and rank and hail work will effectively be reserved for taxis as we currently know them i.e. vehicles equipped with fare meters. The risk is the old culture might limit what’s possible. A management structure that’s in tune with the possibilities opened up by new technology would be a better approach.

Second, the $2 per trip tax levied on all providers to fund the compensation scheme will increase the cost of travel compared to what it would otherwise be under the new more competitive arrangements. Some, perhaps most, of the benefit from the change will go to taxi license holders rather than travellers.

Third, $2 per trip levy looks excessive. On the reasonable assumption that around 40,000,000 trips are made each year by all hire vehicles in Victoria, the levy should raise $80 million per year (and that makes no allowance for increased patronage induced by the more competitive regime). The NSW government is imposing a temporary (five year) levy of $1 per trip which it says will raise $254 million; the Victorian tax should also be temporary.

Fourth, it’s debatable whether or not the taxi industry should receive any compensation at all other than hardship assistance. The government doesn’t explain its rationale for the $378 million compensation fund beyond saying it’s “fair” but a common argument is that investors in highly regulated industries should be compensated if government changes the rules significantly. Governments commonly establish  “grandfathering” arrangements in these situations.

Rod Bogaards, a former Director of the Productivity Commission, put the no-compensation case in a piece he wrote earlier this year in the context of Qld’s response to ride sharing services:

  • Loss of taxi plate value is due to technological change not a change in government policy. The demise of state taxi monopolies has been brought about by the entry of ride sharing services rather than any government action. Governments are therefore under no obligation to pay compensation.
  • Governments should not compensate taxi owners for poor investment decisions. The purchase of a taxi plate is an investment like any other financial investment. Taxi plate ownership was never a risk-free investment since there was always a risk that technological change or regulatory reform would reshape the taxi industry.
  • It is unfair for consumers/taxpayers to compensate taxi owners. Asking consumers to pay more to taxi plate owners is very difficult to justify on fairness grounds, given they have borne the costs of the taxi monopoly for decades in the form of higher taxi fares and longer waiting times than would have existed in a market without supply restrictions.

Mr Bogaards points out that the New Zealand and Irish Governments deregulated their taxi industries without compensating taxi license owners. The owners of the 5,800 taxi licenses in NSW are getting $20,ooo compensation per plate.

The Government says it will continue to consult closely with industry participants on the details of industry transition, accreditation and safety requirements, and the implementation of the levy. I hope it intends to consult with we simple travellers too.

One minor but sensible initiative worth noting is the replacement of the taxi driver Knowledge Test with a simpler registration system.  It’s unnecessary in a world of GPS-equipped smartphones. The Premier rightly describes it as “ineffective, inefficient and costly”.

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  1. Providers will be free to design how the $2 per trip levy is implemented e.g. it might be $3 on long trips and $1 on short trips.