Issues raised in submissions

Issues raised in submissions

1. Industry associations

The VTA strongly opposed the proposed changes, arguing that:

The reasons submitted by the VTA for opposing the draft licensing arrangements included:

Taxi occupancy will decrease as supply increases

Costs to consumers will increase either indirectly, via industry participants cutting costs to remain viable (manifesting as poorer service delivery to customers and less safe services), or by direct fare increases that will be necessary to offset reduced patronage

Driver earnings will fall

There will be significant resultant traffic congestion.

In opposing the draft taxi licensing proposals, TISV adopted a similar view to the VTA: that the taxi market is already ‘full’; there is an ample supply (or an oversupply) of taxis relative to market demand for all but peak usage times on Friday and Saturday nights; and that:

…whilst…additional taxi licences would increase the availability of taxis on Friday and Saturday nights, they will also add to the oversupply of taxis at other times, which will negatively impact existing taxi licences, unless there is a corresponding and sustained increase in demand. ²⁴

TISV nominated two factors that could ‘unlock’ the current shortage of taxi availability on Friday and Saturday nights: addressing the driver shortage (through its proposal for a 20 per cent surcharge on all fares) and addressing driver and passenger safety issues at CBD taxi ranks on Friday and Saturday nights. TISV argued that the inquiry had failed to grasp the gravity of the current situation at CBD taxi ranks, where anti-social behaviour, drunkenness and other problems are discouraging taxi operators and drivers from providing services at these times and places.

Like the VTA, TISV believed that any additional taxi licences should be issued according to demand, using appropriate ‘triggers’, so that supply is adequate but not excessive. TISV suggested “a compromise in the form of lower assignment fees which are capped (at a reasonable level) and new licences able to be issued when identified through an automated public interest test in the form of qualitative triggers”.²⁵

2. Licence owners and networks

Many small licence holders discussed their original purchasing decision, saying they bought into a market they believed would be highly regulated into the future. Some referred to existing regulations as ‘rules’ that the Government would be ‘breaking’ by opening up new licences. Respondents discussed mortgaging their homes and struggling to make high loan repayments in order to acquire a licence, particularly those who purchased a licence in the last 10 years.

Such licence holders believed that their licences are ‘investment assets’ similar to the purchase of a house. Owners discussed this ‘investment’ as a means to provide income security for their families and as a form of superannuation in their retirement. Both metropolitan and country owners had an expectation of continual return from the value of the licence in the future:

Many respondents appeared to have difficulty measuring the impacts of the draft recommendations on their licence values. Those with licences, particularly those who purchased at close to the height of the market (around $500,000) referred to their licence values under the reforms as ‘worthless’, worth only $20,000 or a ‘financial catastrophe’. TISV presented modelling commissioned from Deloitte Access Economics that suggested existing licence values would reduce to $175,000 to $200,000, based on a discount rate of 10 per cent. Preliminary modelling provided by the VTA suggested that licences might fall to $320,000, based on maintaining a 6.25 per cent yield. In many circumstances, licence holders expressed genuine concern that they would never be able to pay off their licence value to the bank and that their licence would become unviable to operate as a business.

There were mixed views about the increased size of the market under the reforms. Some suggested a doubling or tripling of taxis, with many refuting the inquiry’s prediction of an increase in the hundreds:

I would respectfully suggest that this is clearly incorrect and believe that the immediate impact will be much greater probably in the thousands.³⁰

There were also concerns from some country licence owners that the new model would mean they could never sell their licences, as prospective buyers would prefer to lease annually from the Government.

A number of licence owners submitted to the inquiry that high licence values are not unreasonable because they have increased in value much like their houses. Although licence owners may have become accustomed to thinking of their licences as physical assets, there are fundamental differences between taxi licences and physical assets such as houses and land. These differences mean there is no reason why licence prices should continue to grow like house prices or that it is reasonable for them to have grown in value at a similar rate in the past.

Houses have value because the land they are built on is scarce: no more land can be created in desirable locations. Over time, as cities grow, this scarcity value increases. The market for housing, and the interaction between buyers and sellers of houses, determines this value.

Taxi licences are also currently scarce. Taxi licences are issued by the Victorian Government and are only scarce because the Government has decided to neutralise normal market forces and limit their release. Like land, the scarcity value of licences has increased over time. But there is no reason that licences must remain scarce. The Government can simply issue more licences that are exactly the same as existing licences. This would reduce their scarcity value.

This issue of property rights in taxi licences is discussed further in chapter 16.

In response to the potentially depreciated value of licences, many licence holders called for a buyback of their licences or for a compensation package to be made available. Again, licence owners compared the depreciated value of a licence with the loss incurred by a homeowner when infrastructure decisions are made that impact on property values. Those that gave figures for such a compensation scheme suggested it should be commensurate with the height of the market for taxi licences: around the $500,000 mark. Owners suggested monies raised from licences could be redistributed to the industry:

Even those licence holders who had purchased licences at significantly lower values called for compensation equivalent to the current market rate or higher. A number of these submissions threatened a class action if a compensation package was not put forward as part of the reforms. Many submissions suggested the reforms would lead to a reliance on social security or other income support payments as owners left the industry and their businesses.

In responding to the reform package, many licence holders put forward their views on why the industry was encountering poor levels of customer satisfaction. Many believed that the shortage of taxis was only a problem on Friday and Saturday nights and an issue not caused by the number of taxis, but by taxi drivers concerned for their own welfare:

There is a general consensus amongst taxi operators and taxi drivers that the increasing violence, verbal abuse of taxi drivers and damage to taxicabs, especially on Friday and Saturday nights, has led to a situation where an increasing number of taxi drivers are reluctant to service the CBD taxi ranks because they are being increasingly viewed as unsafe.³²

Owners also blamed the Victorian Government for reduced public transport services late at night and the inability of Victoria Police to guarantee the safety of drivers. Regional taxi network operators also suggested more could be done to provide public transport in country areas.

For many respondents, making more licences available was seen as a form of revenue raising by the Victorian Government.

Licence holders considered there were sufficient taxis in Melbourne, noted the 28 per cent occupancy rate and suggested demand for taxis had fallen in recent years. They suggested the introduction of more licences would only serve to reduce this already low occupancy rate and lead to drivers ‘cutting corners’ to get jobs and more experienced drivers leaving the industry.

One respondent suggested the problem was spatial:

The problem is not that there are not enough cars, it is that there are not enough in the right areas, at the right times.³³

Many submissions criticised the lease approach to licensing, suggesting it would cause an oversupply of licences in the market, with corresponding levels of congestion in the CBD and environmental costs. The benefits of ‘as of right’ licensing were disputed on the basis that drivers currently providing poor service will purchase the new licences (referred to as ‘fixed term fly by nighters’ or ‘cowboys’) hoping to make ‘quick money’. There was a belief that these newcomers would be less safe and provide an inferior level of service, exacerbating problems in the industry.

A number of submissions suggested alternative methods for the release of new licences. Releasing a fixed number of peak service licences was seen as one way of addressing the high demand on Friday and Saturday nights. Others suggested an immediate licence release of five or ten per cent of current licence numbers, but for controls to remain on any subsequent new licences.

Taxi Link supported the capping of assignment rentals, noting it “has the potential if delivered correctly to redistribute taxi revenue from the licence holder to the driver”.³⁵ However, the suggestion was that this value would need to be around $2,300 to $2,500 per calendar month and subject to review and adjustment.

Peninsula Taxis suggested an approach where, on application by the network, a non-transferable licence could be purchased from the Government at a fixed price.

The most popular suggestion was for an annual formula-based metric calculation such as those used in New South Wales and Queensland. The model was supported by the VTA and TISV, who argued for retaining a form of public interest test with inbuilt triggers for the release of new licences. Suggestions for KPIs under such a model included ‘population increase’, ‘new suburbs being developed’, ‘public transport patterns’, ‘demographics’, ‘demand’ and ‘wait times’.

An argument put forward by country networks was that the reforms were a ‘one size fits all’ approach that did not reflect the high levels of service by country operators. The lease model and reduced licence values were criticised for not taking account of the high numbers of owner-operator-driver businesses in country areas, meaning these businesses would have less money available to increase remuneration for drivers. Owners stated their businesses would be unviable under the proposed model.

Country networks discussed the problems in using licence values as the basis for zoning, arguing that these values were inaccurate reflections of the wealth of a business and that other factors needed to be taken into account:

It is the value of the vehicles, equipment, goodwill and good service to the public that is sold. The bottom line (profit and loss sheet) is the deciding factor that sells the business.³⁶

Submissions sought further information on how the inquiry arrived at the new licence values, with many suggesting that the recommendations were developed without an evidence base. Many submissions asked for more data and for details of the inquiry’s modelling to be released.

Many submissions disagreed with the suggestion that there could be unmet demand for taxi and hire car services.

Country operators believed the introduction of competition would encourage undercutting by operators and disputes amongst drivers. They argued that without entry restrictions, less experienced ‘cowboys’ would enter the market without having the requisite local knowledge. There were concerns about encroachment with larger operators from neighbouring towns ‘stealing’ potential customers. A few submissions from country taxi drivers supported these concerns.

Coupled with removal of the continuous service provision, a number of country networks believed customers would lose out from a lack of services when demand was low, such as late at night mid-week. These submissions argued that newcomers would only put their cars out when the demand for services were high.

New licence holders will be in it for the money, not the customers. There will be no rule as to what times they choose to operate, which will give them the freedom to work only the more lucrative times they wish. If this is to happen [we] will cease to operate cabs in the less desirable periods as well. This will lead to many times during the week where there will be no service provided at all.³⁷

Country licence owners also argued there would be undesirable effects from removing the public interest test. Latrobe Valley Taxi Company raised the issue of certainty being eroded and suggested this would lead to reduced investment in the industry.³⁸ The Murrell Group of licence owners from Geelong suggested the removal of the public interest test would send licence holders into bankruptcy or into operating their vehicles illegally in order to survive.