Taxis, government and the media

Another Australian issue that’s really a world problem. Almost exactly a year ago I summarised the taxi industry as follows:

It’s a classic monopoly situation: the supply of licences is tightly restricted, so they command astronomical prices, so the owners of licences have to charge exorbitant fares in order to recover their costs. The money isn’t going to the drivers, who usually get by on a pittance; it’s being wasted as rent to those who were lucky enough to get licences before their price rose.

That’s why, just about anywhere you go in the western world (Sweden and New Zealand are among the rare exceptions), taxis are an almighty rip-off. But the popular pressure for reform is less than it might be because most taxi trips are being paid with someone else’s money.

At that time Allan Fels, former chair of the Australian Competition and Consumer Commission, had just produced a report for the Victorian government, recommending a substantial measure of deregulation. The taxi industry, predictably, was furious, and many were sceptical that the government would have the nerve to go through with reform. The fact that it took so long to respond suggested that the issue might have been put in the too-hard basket.

Yesterday, however, those fears were put to rest. The government released its response to the report, which not only accepts almost all of Fels’s recommendations but endorses the logic behind them. Crucially, it supports “relaxing the restrictions that prevent new entrants from operating taxi and hire car licences,” promising to “remove the regulatory restriction on licence numbers and issue new licences to approved applicants at annual fees.”

The original report, the response and the taxi industry reaction all make it clear that this is the critical point: ending the limit on licence numbers. The government has toned down Fels’s intentions slightly; licence fees will be indexed (although at less than CPI) rather than fixed and the regulator will have the power to suspend the issue of new licences if competition seems to be getting out of hand, but this latter power will sunset after three years.

The other proposed reforms – and there are a lot of them – range from useful to cosmetic, but fundamentally they are side issues. Open entry is the big thing.

So it’s fascinating to see the way this fact has been progressively elided. In the full government response, linked above, it takes pride of place. But in the summary, which is probably as far as most people will read, it’s relegated to the fifth item on a list and is expressed ambiguously as “The Taxi Services Commission will issue new licences as the market demands.”

And in the press release it doesn’t even appear as one of the “fundamental reforms”, appearing further down the page as a separate section commencing with “The licensing system will also be improved”.

Given the media’s general reluctance to go beyond the press release, it’s not surprising that this time they followed suit. The ABC’s report, for example, fails to mention open access to licences at all: the closest it gets is a taxi industry spokesperson complaining about “the way taxi licences are released and valued.” Ditto for yesterday afternoon’s free News Ltd paper. The Age focuses more on licences, but misses the point by characterising it as a drop in price. The Guardian doesn’t seem to have the story at all.

Much as it pains me to say it, the Herald Sun has the best report, although its headline is negative. At least it gets the fact that “An unlimited number of licences will be available to rent.”

I’m not sure why the government is being so coy about a pathbreaking reform. Perhaps it thinks economics is unsexy and people will be more interested in peripheral changes. Perhaps it’s hoping that keeping quiet will help to mute the industry backlash. Or perhaps it is anticipating that the key changes might have difficulty getting through parliament (where a renegade MP holds the balance of power) and never actually reach the implementation stage.

Sometimes in modern politics, doing good by stealth seems to be the best that we can hope for.

9 thoughts on “Taxis, government and the media

  1. In Sydney, the big problem with taxis is their scarcity. On Friday or Saturday night you have a long walk to a rank if you know where it is followed by a long wait. So I rarely bother with taxis – I drive or get public transport.

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  2. In the inner suburbs of Melbourne it is very easy to find a taxi – the main drawback is the cost! And, of course, we all know that the driver gets bugger-all of what he takes from us at the end of the trip, so I always feel the need to tip generously on top of the actual cost, even if the driver was crap (like the American hospitality industry). More licenses means less renters and more money going to the drivers – that’s gotta be a good thing when they’re currently working long hours for less than the minimum wage.

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  3. Well it seems we’ve all been duped by the Napthine government with their taxi reforms.
    The titans of the taxi industry are able to lease the new licences so their empire will only get bigger. Also they’ve sent letters to the investors of licences they lease and have told them to drop their yearly lease to $18k or they will go with the new leases from the government saving them millions per year.

    These reforms look like a win win situation for the moguls.

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