Taxi industry inquiry
Inquiry’s response to submissions
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- Hire car zones
- The new PBO model
Inquiry’s response to submissionsWhile clearly opening up more opportunities for the industry, the inquiry’s draft recommendations will also enhance competition and it is this aspect of the proposed reforms that seems to most concern the industry. While a small number of hire car licence holders noted the potential of the reforms to boost their fleet sizes and increase both their share of the commercial passenger vehicle market and the overall size of the market, submissions were more inclined to highlight concerns about business losses and criticise the competition principles upon which the inquiry’s recommendations were based. Very little was said by the industry about the changes in vehicle standards and how these could enhance niche opportunities. The inquiry remains firmly of the view that encouraging greater competition within the hire car and taxi sectors and between the sectors is the best way forward, from both a consumer and industry perspective. However, the inquiry has reframed some of its recommendations to respond to concerns raised in response to its draft recommendations and at the forum for hire car operators. These changes are discussed below.
The inquiry notes the view advanced by some submissions that the removal of the Metropolitan and Country hire car zones, combined with the new set price of $40,000, may pose a significant barrier for new entry in country and regional markets, at least in the short term. Operators also told the inquiry that there is insufficient work in country towns to justify purchasing a $40,000 licence. The inquiry accepts that the draft recommendation would provide incumbent owners of Country hire car licences with a windfall gain in the value of their licences and that the cost of obtaining a new licence would double. The inquiry recognises that a high new licence cost in regional areas also increases the risks of illegal operation by the new RH classification. Such risk would be partially mitigated by other inquiry proposals for better enforcement in regional areas and clearly identifiable vehicles. However, the inquiry is concerned that based on the evidence provided by country hire car and taxi operators a $40,000 licence could stifle future investment of hire cars in country areas and that this would severely restrict community access to a broader range of point-to-point transport options. Furthermore, the reforms to country taxi services may take time, delaying the entry of new taxis to certain markets. The inquiry has reconsidered its draft recommendation on de-zoning hire cars, taking into account both the taxi and hire car services available to the public. The inquiry considers that amending the zone boundary to align with taxi licence zones provides the best balance of competition and industry growth. Under the inquiry’s final recommendations, the public interest test will still be removed; however, the Metropolitan hire car zone will be re-aligned to be consistent with the Metropolitan and expanded Urban taxi zones, with a licence price of $40,000. Areas outside of these zones (the Regional and Country taxi zones) will form the Country hire car zone with new licence values set at a price of $20,000. Metropolitan hire car (or PBO) licences will be able to operate statewide, while country PBOs will be able to work in all Country zone areas. The inquiry recommends that current operators with full operating rights in the new Metropolitan hire car zone (including Open SV licences permitted to operate in Metropolitan and Country hire car zones and metropolitan hybrid licences) should be converted to the new Metropolitan PBO licence free of charge. VHC licences with an operating address in the new Country hire car zone should be issued a Country PBO licence free of charge. The expanded Metropolitan hire car zone will address many of the concerns of fleet operators in large urban areas that they cannot work in Melbourne. The inquiry understands that some operators in country towns may also seek these same conditions to operate in Melbourne. However, the inquiry considers that too many detrimental effects for customers will result from a high Country hire car licence value, including a reduction in country based PBO vehicles. A simple zoning arrangement that corresponds to the borders of taxi zones will strengthen competition and ensure the enforcement task can be more easily defined and met. The two-zone licensing regime aims to expand the range of services available to country populations while the taxi reforms are phased in to these areas. The $20,000 price of a hire car in country Victoria may prompt taxi networks to purchase a PBO licence to supplement their fleets (noting that the pre-booked market in country areas comprises 90 per cent of jobs). If this occurs, customers stand to receive a better service than they currently receive, particularly in more remote parts of the State. For networks, the purchase of a hire car, with its reduced regulatory requirements, could also be more attractive than an additional taxi licence. The inquiry considers that its licensing reforms will allow potential market entrants to make informed decisions about whether there is demand for their services. Other entry costs, such as purchasing a vehicle and communications equipment and making annual lease payments, will still need to be taken into consideration. The inquiry can see no compelling reason for denying potential entrants the right to assess these costs and risks for themselves. Many submissions made the point that the current metropolitan-country hire car zone definition is arbitrary and exceptionally difficult to enforce. The alignment of hire car zones with the taxi zone, together with clear identification of vehicles and reviews of penalties, will make the enforcement task easier under the new PBO model. Furthermore, the inquiry is making a new recommendation for the Taxi Services Commission to implement a community campaign to educate passengers on how to book a PBO cab, identify approved PBO cabs and report illegal operators. Distinguishing between a Country and Metropolitan PBO cab should be built into this education campaign.
In responding to submissions on its draft recommendations, the inquiry considered different licence pricing models and gave further consideration to the effect of its proposals on country markets. One such model was the introduction of an annual payment option that would provide a more flexible payment option for those wanting to enter the market. This approach would also align more closely with the proposed new taxi licensing scheme. Hire car operators expressed the view that this would only be feasible if accompanied by a buyout of existing licences. The financial and administrative costs involved in doing so make this unfeasible in the current economic climate. Accordingly, the inquiry considers that the one-off payment for a perpetual licence should remain. As noted in the Draft Report, it is clear that the reduction in the MH hire car licence price from over $70,000 to $60,000 in 2004 resulted in new entry and a more competitive industry. However, this growth has not had the additional networking effect seen in other pre-booked only cab markets. The lack of networking, together with high vehicle costs, has made it hard for the hire car industry to compete with taxis, as hire cars do not have the number or distribution of vehicles to meet demand in the ready-to-ride market. The inquiry’s view is that the combined effect of its recommendations the further reduction in licence price, issuing licences ‘as of right’ and removing the luxury vehicle requirement will provide further steps towards a competitive pre-booked market. As discussed in the previous section, the inquiry considers that an adjustment of the hire car zones, as opposed to a whole-of Victoria licence, provides a more equitable solution for country users and hire car businesses wanting to expand their fleets. Under this model, the large urban centres of Geelong, Ballarat and Bendigo will be brought into the $40,000 (GST exclusive) licence class of a Metropolitan PBO, allowing greater inter-city networks to develop. Country hire car zone operators will pay the existing licence fee of $20,000 (GST exclusive) to expand their fleets, with the removal of the public interest test and luxury vehicle tax threshold allowing greater opportunity for networks to develop. The inquiry recommended in the Draft Report that the set price for a PBO licence be reviewed in three years. Industry participants have told the inquiry that this would act as a disincentive to investment and the inquiry agrees this may be the case. In its final recommendation, the inquiry has removed the requirement for the ESC to undertake a review of PBO licence prices. This will enable new entrants to forecast their ongoing costs with some degree of certainty. The inquiry considers that a set price and reduced vehicle entry costs should provide the stimulus needed for greater investment in fleet PBO services that can offer a level of competition with taxis, particularly in the ready-to-ride pre-booked market. The inquiry has also clarified that the $40,000 metropolitan and $20,000 country prices are GST exclusive amounts, in line with the current $55,000 (GST exclusive) amount. The TSC will work with the Australian Tax Office to ensure the GST component currently paid by prospective licence owners will not be paid in the future. The inquiry disagrees with assertions that the PBO model will result in the same problems experienced in the London minicab market. The minicab model in London developed in a largely ad hoc manner from an environment of low levels of regulation. A licensing scheme for London minicabs was only introduced in 2001, despite there already being thousands of operators in the market. In effect, regulatory protections were retro-fitted to an existing market. The situation in Victoria is markedly different as a regulatory regime with appropriate standards is already in place. The inquiry’s recommendations provide for the new look hire car fleet to be highly visible and clearly identifiable, and for information about all PBO permit holders to be made available on a real-time Public Register on the TSC’s website. The inquiry is also recommending that the provision of information about the introduction of PBOs be a strong focus for the TSC in the early years of implementing reform. The market will also play a major role in the accountability and competitiveness of the PBO model through the provision of technological solutions. The inquiry has met with several providers of smartphone based booking services that will allow PBO networks to compete directly with taxis in the pre-booked market. Rather than wait in a taxi rank or try and hail a cab late at night, passengers are currently able to order a PBO on their smartphones and obtain an immediate ‘quote’ for the service. With the expansion of such booking services, the inquiry anticipates that PBOs will form larger networks that allow them to dispatch vehicles in times comparable with taxis. Finally, the inquiry notes that, while a number of submissions (largely from the taxi industry) chose to highlight problems with the London minicab market, little comment was made about its successes. In London, minicabs have carved out market niches in the provision of late night travel and specialty services, offering customers a wider range of travel options. Addison Lee is one of the success stories of London’s minicab experience, operating a sophisticated automated booking, dispatch and traffic management system that has allowed the company to compete successfully with the city’s famous black cabs. Similarly, the New York Livery provides an important pre-booked service to the city’s outer boroughs where taxis prefer not to operate.85 The inquiry’s recommendations open up the prospect for the hire car and taxi industry to take positive elements from the experiences of these cities and use the new PBO model to foster innovation, improve services in low demand areas and uncover latent demand. As part of the removal of the luxury vehicle tax threshold, the inquiry has considered the age limits that should apply to PBO vehicles. In the Draft Report, the inquiry recommended that no change should be made to vehicle age limits for taxis and PBOs and that the TSC should conduct further research into the influence of vehicle age on safety to determine whether changes should be made. The current age limits relate to the ‘luxury’ vehicles that operate in the hire car market. So far as possible, it is desirable that there be regulatory neutrality between taxis and PBOs: this suggests that vehicle age restrictions between the two market segments should be aligned. However, the inquiry recognises that taxis generally do far more kilometres per year than hire cars because of their hours of operation and rank and hail work. As an interim measure, pending further assessment by the TSC, the inquiry recommends that vehicles meeting the luxury vehicle tax threshold have their current age limits retained. However, all new PBOs not meeting the luxury vehicle tax threshold should be subject to the same age limits imposed on taxis: Maximum vehicle age: 6.5 years Maximum vehicle age for entry into the Victorian PBO fleet: 2.5 years.
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