Taxi industry inquiry
Major components of the draft reform package
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- Better quality drivers
- Changing licensing for entry to the taxi industry
- Hire car reforms
- Moving from fare regulation to fare competition
- Other core reforms
Major components of the draft reform packageAs detailed in the Draft Report, the inquiry concluded that unduly restrictive regulation is at the heart of most of the problems confronting the taxi and hire car industry and that making piecemeal regulatory changes will deal only with the symptoms of these problems. Accordingly, the inquiry’s draft reforms aimed to generate a fundamental shift in the focus of regulation and in the balance between government, industry and market regulation. The draft reform package was designed to deliver significant and lasting improvements in three critical areas: increasing and improving the supply of taxi and hire car services; restoring trust and confidence in the taxi industry; and boosting demand for taxi and hire car services. Under the draft proposals, government regulation would become more outcomes-focused and less prescriptive; more responsibility would be placed on industry participants for good service performance; and competition would operate more effectively to improve service performance. There would be a significant reduction in the administrative and compliance burdens imposed on the industry (and their associated costs) as a result of the better targeting of regulation and the removal of undesirable regulation. Over time, the structure of the industry would be expected to shift towards a more open and competitive market with a higher number of owner-drivers and both small and large businesses offering greater choice in services, vehicles and price. The draft recommendations formed an integrated package of reforms that aimed to deliver the following broad outcomes: For consumers – Better services and a greater choice of services that are safe, reliable and affordable, and that offer a bigger range of travel options and prices For industry – A more diverse and dynamic industry, a reduction in the regulatory burden and new opportunities to expand into new markets and attract more customers For taxi operators – More choice in the networks they join, the services and equipment they purchase and the types of service they provide For drivers – Better remuneration and improved working conditions, greater valuing of driver experience and quality, and more opportunities to start their own taxi businesses For government – A more effective industry regulator and better targeted, less complex regulation that protects consumers, improves safety and does not impede competition. The main elements of the reform package are outlined below. For a full analysis of these issues, readers should refer to the relevant chapters of the inquiry’s Draft Report.
As noted above, the inquiry’s strong view was that improving driver quality should be a top priority for the taxi industry as it is critical to improving taxi services and increasing demand for these services. The inquiry considered in detail a range of options to address driver quality including entry and training requirements, remuneration and working conditions, the legal basis for engaging drivers, ways to improve driver status and respect, accountability for driver quality and approaches adopted in other jurisdictions. The core elements in the inquiry’s draft reform package were: New driver training and entry requirements A new mandatory Driver Agreement to replace existing bailment arrangements for engaging drivers Enhanced remuneration for drivers within the terms of the Driver Agreement. While recommending improvements to driver training to deliver a supply of drivers who meet reasonable community expectations, the inquiry concluded that better pay and conditions for drivers are essential to enhancing the industry’s ability to attract and retain quality drivers and, ultimately, improve service performance. The inquiry proposed a new Driver Agreement that would replace all existing bailment arrangements and contain minimum terms, conditions and payment arrangements published by the Victorian Government and enforced by industry participants and the regulator. The Driver Agreement would include conditions such as Occupational Health and Safety responsibilities, insurance obligations, service standards required of the driver and dispute resolution mechanisms. The Driver Agreement proposed in the Draft Report provided for paying no less than 60 per cent of the fare box revenue to drivers. The inquiry also canvassed an alternative of establishing a minimum hourly rate for the hours drivers work in peak and non-peak times or allowing drivers and operators to choose between either a specified minimum percentage of fare box revenue or minimum hourly rates when entering into the Agreement (as long as this did not result in a lower remuneration than the 60 per cent share of the fare box). The inquiry was mindful of the fact that, because driver remuneration has been forced to such low levels, there is now a practical issue of how taxi operators will be able to afford to pay their drivers more. The inquiry found that most of the benefit of low driver remuneration has flowed through to licence holders in the form of higher assignment prices. The inquiry proposed a number of reforms aimed at improving the financial position of taxi operators by lowering their costs, raising revenue and boosting demand for taxi services to offset higher pay for drivers. Critical among these are the draft proposals regarding taxi licences, which would lower licence assignment costs and cap future growth in assignment prices. The inquiry observed that the industry needed to do more to improve its ability to attract and retain good drivers, instead of relying on a continual flow of temporary drivers.
The inquiry proposed to change the restriction on the issue of taxi licences across Victoria from a restriction on the numbers available to a policy whereby any qualified person can purchase a new licence at a set price from the Victorian Government at any time. There would be no quantitative limit on the number of licences issued and no restrictive ‘public interest’ test applied by the regulator. New licences would not be free, but would be available for a fixed annual fee. Over time, as the market for taxi services grows, this new approach would allow a smoother adjustment in the supply of taxi licences, ensuring greater availability of service at peak times. It would also remove the ongoing problem of having the regulator ‘second guess’ the market demand, rather than individuals and firms operating in the market making this assessment. Under the inquiry’s draft recommendations, all new taxi licences would be available for a five year term at a fixed annual price, paid ‘upfront’ each year. This price would not be increased or indexed over time. The new taxi licences would be transferable, but not assignable and would not be subject to the current ‘continuous operation’ licence condition. The draft recommendations proposed issuing licences in four specific zones, with appropriate prices set for each zone: Zone 1: Greater Melbourne combines the existing Metropolitan and Outer Suburban zones (Dandenong and Frankston). Proposed annual licence prices: conventional $20,000 per year; WAT $16,400 per year. Zone 2: Urban includes the regional cities of Ballarat, Bendigo and Geelong and other service areas where current licence values are, or would be expected to be, above $200,000. Proposed annual prices: conventional $12,000 per year; WAT $9,400 per year Zone 3: Regional comprises service areas where current licence values are, or would be expected to be, between $100,000 and $200,000. Proposed annual prices: conventional and WAT $6,500 per year Zone 4: Country comprises all other parts of the State not covered by Zones 1, 2 and 3. Proposed annual prices: conventional and WAT $2,000 per year. The inquiry proposed that the 330 10-year WAT licences issued throughout 2010 and 2011 into the Greater Melbourne area, and the 600 restricted peak service ‘green top’ licences issued between 2003 and 2009 that operate in metropolitan Melbourne, would be offered the option to convert to the new five year licence. The inquiry went to some lengths in its Draft Report to set out a clear rationale for its proposed changes to licensing. The inquiry noted that quantity restrictions to entry to the taxi and hire car industry are not justified on market failure or public benefit grounds, stifle competition and innovation, cause licences to acquire significant market value and are ultimately detrimental to industry performance. However, the inquiry did not propose an immediate move to an ‘open, free entry’ market, recognising the severe impact this would have on some incumbent licence holders. The inquiry also noted that making all new licences non-assignable would expand the owner-operator component of the industry, shifting the taxi industry’s structure from an investor model to a service industry model. At the same time, other recommendations made by the inquiry aimed to increase demand for taxi services and reduce barriers to expanding the range of services that can be offered by taxis. The inquiry considered that, over time, this would lift vehicle utilisation rates and generate higher revenue, building the economic strength of the industry and securing its future as an efficient services provider.
The inquiry proposed a significant relaxation in the regulation covering hire cars to enable them to provide a wider range of services. Under the inquiry’s reforms, hire cars would be known as Pre-Booked Only cabs (PBOs). As with taxis, the public interest test currently applying to the issue of country hire car licences would be removed and all new PBO licences would be granted ‘as of right’ to approved applicants who wish to purchase them at set prices. Separate Metropolitan and Country hire car zones would be abolished and new and existing licences would be authorised to operate a pre-booked service anywhere in the state. A consolidated, uniform PBO licence would be adopted statewide with a uniform set of conditions. Licences would be of no fixed term, be permitted to be sold but not assigned and restricted to pre-booked operation only. PBO licences would be available for purchase at any time to approved applicants at a one-off set price of $40,000. The current requirement for vehicles to meet the value of the luxury vehicle tax threshold would be removed and replaced with new minimum vehicle standards that allow for greater choice and flexibility in the types of vehicles selected for providing PBO services. The inquiry indicated that it expected these changes to lead over the longer term to the emergence of more diverse pre-booked services, ranging from the luxury, ‘high end’ market to more affordable and/or specialised services. These developments would give Victorians a much greater choice in point-to-point travel options. The inquiry also proposed reforms designed to deal with the problem of touting by unlicensed, illegal operators as well as touting by licensed PBOs operating outside their licence conditions. These reforms included adopting a new, orderly approach to hire car bookings and pick-ups at Melbourne Airport and increasing penalties for touting.
The inquiry found that the current system of fare regulation discourages competition, restricts innovation and creates distortions, as seen in short trip refusals and long queues of taxis at the airport. The inquiry proposed a two-stage process to move from fare regulation to fare competition over time: In Stage 1 (the first three years of the reform program), taxi fares in the Greater Melbourne and Urban zones would be regulated and determined by the Essential Services Commission (ESC). Fares set by the ESC would change from being prescribed fares (fixed amounts) to maximum fares. In Regional and Country zones, where pre-booked services predominate, the TSC would have the power to replace formal maximum fare regulation with a price notification system following the implementation of price-based licensing policy in these areas. In Stage 2, the TSC would assess the extent and effectiveness of fare competition in the Greater Melbourne and Urban zones and determine when it is suitable to move from maximum to notified and monitored fares. Fares would also be restructured and simplified, including late night peak pricing on Friday and Saturday nights (with off-setting reductions at all other off-peak times); increasing the flagfall and reducing the price per kilometre for the Greater Melbourne zone; and simplifying multiple hire fare charging to support more flexible, shared ride services. Fare reviews would be undertaken periodically, with interim reviews taken when certain cost thresholds (such as LPG prices) are reached.
Alongside these significant regulatory reforms, the reform package included a number of other ‘core’ elements the inquiry considered essential to a more competitive, innovative and consumer-oriented industry: A new streamlined system of approval and responsibility for taxi operators and networks Replacing prescriptive service standards with outcomes-based regulation that will allow networks and operators to choose for themselves how to meet the required outcomes Removal of the requirement for taxi operators to be affiliated with an NSP and reforms to encourage new networks to enter the market Allowing greater choice in the types of vehicles that can be used as taxis and hire cars Establishing a central booking service in the Greater Metropolitan zone to improve booking services for Wheelchair Accessible Taxis An expansion of the Multi Purpose Taxi Program (MPTP) Permitting advertising on taxis and hire cars, subject to strict guidelines Establishing a Public Register of industry participants, with taxi users able to access the register from the cab using smartphone technology Allowing taxis and hire cars to compete with buses and other public transport, and removing regulatory and other barriers to taxis moving into new markets. The inquiry also sought views on removing the requirement for taxis to be painted yellow in the Country and Regional zones, and allowing networks in the Greater Melbourne and Urban zones to choose their own distinctive livery, which would enable them to develop more recognisable brands and improve competition.
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