Taxi industry inquiry
Taxi licensing and zones Taxi licensing
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Taxi licensing and zones
Taxi licensingThe Draft Report set out a detailed analysis of the current licensing regime governing taxi and hire cars. The inquiry found that the restrictions on the release of taxi licences, contained in sections 143 (including the application of the ‘public interest’ test) and 143A of the Transport Act 1983, are costly for consumers. The benefits of these restrictions have accrued to licence holders, not to consumers, taxi operators or taxi drivers. The costs of these restrictions are felt by consumers because: Prices are higher than necessary to provide a passenger service (as the assignment costs, which are real costs for taxi operators who do not own a licence, are built into regulated fares) Restrictions exacerbate problems of meeting demand at peak times By raising the cost of market entry, restrictions prevent service innovation and in particular the servicing of market niches Restrictions impose a significant regulatory burden and create the risk of the licensing authority choosing the wrong price and quality combination. The Draft Report also considered various arguments for retaining licence restrictions, including that there will be ‘too much’ entry and uneconomic services provided by taxis will be eroded in an unrestricted market, and that the restrictions lead to more efficient production of taxi services. For each of these arguments, the inquiry found that any benefits that may be derived from licence restrictions are far outweighed by the costs they impose. The inquiry found that the net welfare costs of the restrictions in Victoria are likely to be substantial. Modelling conducted by the inquiry (summarised in the Annex to this report) suggested that the licence restrictions cost Melbourne taxi users around $120 million per year and that there are associated losses of welfare (losses from prices being too high and quantities of taxi services being consumed too low) of up to $76 million per year. This modelling shows that if the current profits made by licence owners were used instead to lower prices and increase service availability, the likely gains to consumers would outweigh the losses experienced by licence owners. After finding no strong public interest grounds for continuing to restrict entry, the inquiry examined in detail the case for an open taxi market in Victoria. The Draft Report noted that an immediate move to a full open market would undermine existing market values of licences and drive these to zero. With current values for perpetual licences at the commencement of the inquiry hovering at just below $500,000 in Melbourne and over $300,000 in many areas outside Melbourne, the inquiry found this would impose severe losses on licence holders. Some of these licence owners will not have obtained excessive returns on their licences in the past, having acquired them well after restrictive licensing was first introduced. The inquiry indicated that it was unwilling to recommend a full open market without measures to offset the losses licence holders would suffer. Further, the inquiry found that such an approach would not necessarily improve service performance to the same extent as taking action to address driver quality concerns. The inquiry proposed a more moderate approach, in which new licences would be issued to any qualified person at any time for a set annual price. This price would be set at a significant level (not ‘free entry’) and act as a market-based rationing mechanism to determine the number of licences, rather than a rigid quantitative control. As a result, the inquiry recommended no regulated limit on the number of licences made available and no restrictive ‘public interest’ test applied by the regulator. This new policy would have the effect of reducing the impact of restrictions on licences in the longer term, while also creating an opportunity to re-balance the income distribution within the industry between owners and drivers by reducing (but not removing) the returns to licence holders and increasing driver payments.
The inquiry’s draft recommendations provided the basis for moving to restricting licences based on price, rather than quantity. A new approach to taxi licensing should be adopted statewide whereby licences are available at any time to approved applicants at a set price. The restrictive public interest test currently applying to the issue process for country taxi licences should be removed. All new licences in Victoria should be granted ‘as of right’ to approved applicants who wish to purchase them at set prices. New and existing licences should be authorised to operate in a four tier system of taxi zones, with corresponding prices for new licences established for each zone (as below). The inquiry’s recommended zonal boundaries take into account current licence values as the core criteria and, where this information is limited, other indicators have been taken into account such as size of market, number of licences, licence values and population growth in different parts of the state: Zone 1: Greater Melbourne - This zone should combine the existing Metropolitan and Outer Suburban zones (Dandenong and Frankston) Zone 2: Urban - This zone should include the regional cities of Ballarat, Bendigo and Geelong (currently deemed as separate urban zones) and other service areas where current licence values are, or would be expected to be, above $200,000 Zone 3: Regional - This zone should comprise service areas where current licence values are, or would be expected to be, between $100,000 and $200,000 Zone 4: Country - This zone should comprise all other parts of the State not covered by Zones 1, 2 and 3 The new conventional and wheelchair accessible taxi (WAT) licences should have set annual payment prices as follows: Zone 1: Greater Melbourne – conventional $20,000 per year; WAT $16,400 per year Zone 2: Urban – conventional $12,000 per year; WAT $9,400 per year Zone 3: Regional – conventional and WAT $6,500 per year Zone 4: Country – conventional and WAT $2,000 per year. The new taxi licences should have a uniform set of conditions set in regulation, including that they are:
The 330 10-year wheelchair accessible taxi 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, should be offered the option to convert to the new five year licence (including the new terms, conditions, payment prices and method of issue).
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