Responses to the Draft Report

Responses to the Draft Report

Main features of the response to the Draft Report were:

There was widespread agreement that taxi services need to improve. Almost all submissions and responses to the inquiry from outside the industry continued to express significant concerns about service, including poor driver quality, unsatisfactory performance by taxi booking services, problems with taxi availability during peak times or in particular locations, and issues with accessibility and services provided to people with a disability.

The need to improve customer outcomes was acknowledged by the industry’s leading representative bodies, the Victorian Taxi Association (VTA) and a newly formed breakaway group, Taxi Industry Stakeholders Victoria (TISV).

While there was broad agreement on the need for some reform, there was a clear divide in responses to the draft recommendations between the investment interests of taxi licence holders and operators (who focused largely on opposing the proposed changes to licensing and driver remuneration) and responses from community groups, business organisations and local councils (who either supported the broad direction of the reform package or endorsed specific proposals relating to their interests).

The most contentious areas were the inquiry’s proposed changes to taxi and hire car licensing and the new mandatory Driver Agreement. These recommendations were strongly opposed by those with investment interests in the taxi industry.

There was strong support from outside the industry for proposals to lift the status, income and working conditions of drivers, with many seeing this as being directly related to service quality and, in some instances, as a matter of ‘fairness’. Current drivers also strongly endorsed these proposals.

There was criticism from country taxi operators and networks that the inquiry’s reform package was ‘city centric’ and did not take into account the better standards of service in country areas and the relatively high numbers of owner-operator-driver businesses.

Opposition to the inquiry’s proposed licensing reforms centred around concerns that opening up entry would ‘flood’ an already ‘full market’ (leading to a decrease in taxi occupancy, higher consumer costs and lower driver incomes) and cause significant financial problems for some licence holders.

Generally, the response from key elements in the industry was to support the majority of recommendations but strongly oppose major reforms in licensing and driver remuneration. The inquiry is disappointed, but not surprised, that the industry is continuing its long record of opposing substantial reform. The inquiry considers this opposition to be a misdirected, if understandable, attempt to maintain the current high degree of protection enjoyed by licence holders that runs counter to the long term interests of the majority of industry participants.

A moderate path to reform

It should be noted that the inquiry considered going further in its approach to removing the restrictions on taxi licence numbers by proposing an open entry model.

The inquiry remains firm in its view that the current structure of Victoria’s taxi industry protects a relatively small number of licence holders from the effects of competition at the direct expense of consumers, taxi operators and taxi drivers. The inquiry has found no strong public interest grounds for continuing to restrict entry to the taxi market. As noted in the Draft Report, these restrictions are detrimental to competition and innovation, and make it very difficult for a wider range of people, including drivers, to operate taxi businesses. In addition, the holders of these restricted licences are able to capture a substantial share of industry income without re-investing their rewards back into the industry. This has a direct impact on consumers by driving up fares.

However, the inquiry reaffirms that it has chosen not to recommend an immediate move to an open market and is instead proposing a more moderate set of reforms, acknowledging that full open entry would reduce taxi licence values to close to zero and cause significant financial difficulties for some licence holders.

Adopting this moderate approach maintains a level of protection for licence holders at the cost of providing greater and more immediate scope for the industry to pay drivers more and deliver consumer benefits in the form of better quality drivers, lower fares, greater taxi availability and more choice in taxi services. This trade-off between licence values and broader consumer and community benefits means that Victorians will continue to pay a premium for taxi services.

Modelling conducted by the inquiry found that Melbourne taxi users alone pay around $120 million each year to maintain the value of taxi licence plates. There are also associated ‘welfare’ losses (losses from prices being too high and the quantity of taxi services being consumed too low) of up to a further $76 million each year. Under the inquiry’s moderate approach to reform, Victoria’s taxi users will continue to underwrite taxi licence values, but to a much lesser extent than at present (around $80 million a year). This still represents a substantial impost on consumers and should be seen as a concession to the industry and, in effect, a form of assistance to all licence holders.

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