Taxi industry inquiry

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Customers First:

Safety, Service, Choice


Final Report

September 2012

ISBN 0-7311-8793-8

© Taxi Services Commission 2012

This publication is copyright. No part may be

reproduced by any process except in accordance

with the Provisions of the Copyright Act 1968.

Authorised by the Taxi Industry Inquiry,

121 Exhibition Street, Melbourne

If you would like to receive this publication in an

accessible format please telephone the Taxi Industry Inquiry on 1800 829 444.


It is now nearly 18 months since the Victorian Government announced its intention to establish an inquiry into the Victorian taxi and hire car industry and 16 months since the Taxi Industry Inquiry commenced its investigations in May 2011.

Over this time, the inquiry has received more than 1,500 written submissions, met with hundreds of people throughout Victoria and heard from taxi users, industry participants and community groups at public hearings and forums across the State. We have commissioned specialist consumer and economic research, issued eight publications on specific taxi and hire car matters, and produced an exhaustive Draft Report Customers First: Service, Safety, Choice.

This Final Report summarises the further work carried out by the inquiry since the release of our Draft Report in May 2012. This report does not repeat the comprehensive and detailed analysis contained in the Draft Report; rather, it sets out industry and community responses to the inquiry’s draft proposals, discusses the inquiry’s re-consideration of critical issues and explains the revisions and additions made by the inquiry to its draft recommendations. This Final Report should be read in conjunction with the Draft Report.

While the inquiry has made some significant modifications to our draft recommendations, we remain firm in our core policy approaches and in our conclusion that the Victorian taxi industry must move away from its current high level of protection and restrictive government regulation to one that embraces competition and self-regulation. This move is essential not only to improving the standard and quality of taxi services for consumers, but also to securing the long term future of the industry.

The inquiry’s recommendations aim to relax entry restrictions to the taxi and hire car markets over time, with new licences made available at any time to approved applicants for a fixed annual price. This price will vary according to the geographic area in which the taxi or hire car is operating. The owners of these new licences will not be permitted to assign them to other people, leading ultimately to a more diverse industry structure. Importantly, by placing a cap on annual licence prices and the assignment fees paid to operate a perpetual licence, the recommendations will bring a halt to the ever escalating increases in licence values that have characterised taxi regulation over recent decades.

The inquiry could have gone much further in its approach to removing the restrictions on taxi and hire car licences. In effect, Victoria’s taxi industry has operated for many years as a ‘closed shop’, with a small number of licence holders protected from the effects of competition at the direct expense of consumers, taxi operators and taxi drivers (who continue to experience low levels of remuneration, poor working conditions and a highly risky work environment). The inquiry found no public interest or other grounds for allowing this situation to continue. However, we have not endorsed an immediate move to an open market and are instead proposing a more moderate reform approach, recognising that substantial reductions in taxi licence values are likely to cause financial difficulties to some licence holders.

It is important to appreciate that in adopting this middle path, licence holders will continue to enjoy a level of protection that comes at a cost to paying customers and taxi drivers. Melbourne taxi users pay around $120 million each year (through taxi fares) to maintain the value of taxi licence plates. Under the inquiry’s proposals, taxi users will continue to underwrite taxi licence values, but to a much lesser extent than currently occurs.

It is disappointing  if unsurprising  that key elements in the industry continue to resist even a moderate approach to reform. The inquiry’s view is that the industry has allowed a situation to continue where much of the revenue generated by the industry flows to licence holders rather than those providing services on the ground: operators and drivers. The industry must bear considerable responsibility for its efforts to prevent past governments from adopting fundamental reform and for failing to take action to lift performance, increase service availability and attract and retain quality drivers. Now, with high levels of customer dissatisfaction and low occupancy rates threatening the industry’s future, these elements should not be allowed to derail essential reforms.

It is clear that opening up entry, increasing competition and reducing ineffective and costly regulation is the best way forward for the industry. These reforms will not only improve the choice, quality and availability of services for taxi and hire car users; they will also assist the industry to become more accountable for its performance and to boost demand for its services. Those in the industry who are willing to explore new and innovative service options, and adopt a more competitive business model, will be encouraged to do so. These reforms will also improve safety (including though safer and more accessible vehicles), lead to better quality drivers, give operators greater freedom in how they conduct their businesses and deliver a much reduced regulatory burden on operators and networks.

Some of these results will take time to emerge. The inquiry is recommending a comprehensive reform package that will unleash the dynamic forces of competition in an industry that has been largely shielded from these forces for decades. While the inquiry is recommending pacing the reforms over three to five years, some volatility can be expected along the way as the reforms filter through the industry and settle down. The Victorian Government needs to hold the course on these reforms and ensure that a competitive market that is responsive to customer needs emerges over time.

Of course, any significant regulatory reform will have varying impacts on industry participants. For some, the reforms will present new options and be seen as positive; for others, adjusting to changed circumstances will present difficulties and be seen as negative. Clearly, there will be an adverse impact on a small group of licence holders  mainly those who purchased their licences within the last 10 years. While the inquiry has found no legal or economic justifications for compensating licence holders, we have suggested to the Victorian Government that it could consider providing tightly targeted assistance to licence holders facing considerable financial difficulties as a result of these reforms.

Since the late 1980s, there have been a number of attempts in Victoria to reform the taxi industry. These efforts have met with little success in the face of vigorous industry opposition. The opportunity for reform provided by this inquiry  unprecedented in its scale and the extent of its analysis  should be welcomed by all who care about the future of the taxi industry in Victoria and who want to see it survive and succeed as a genuinely competitive and innovative industry that offers high quality services to consumers and a fair distribution of revenue to participants.

I thank the many people who have made valuable contributions to the work of the inquiry over the past 16 months. This includes industry participants, taxi users, community and business groups, local councils and economists and industry experts. I also thank the Minister for Public Transport, Terry Mulder, and staff of the Victorian Taxi Directorate and the Department of Transport for their cooperation and assistance. Finally, I thank my talented and hard working inquiry team, particularly Commissioner Dr David Cousins and Project Director Ms Megan Bourke-O’Neil, for their support, diligence and commitment over the course of the inquiry.

When announcing this inquiry in 2011, Premier Ted Baillieu indicated that he expected the inquiry to address “long-standing and deep-rooted” issues and to recommend “sweeping reforms” to the industry that would improve low levels of public confidence, provide better security for drivers and safety for customers, and ensure that drivers are properly trained and knowledgeable. I am confident that our proposed reforms are nation-leading, have more than met the Premier’s expectations and will address the serious and systemic problems in the industry identified by the Victorian Government.

I look forward to the Government’s response to the inquiry’s recommendations.

Professor Allan Fels AO

Chair, Taxi Industry Inquiry


Executive summary 7

The inquiry’s work 7

The inquiry’s Draft Report 8

Responses to the Draft Report 9

A moderate path to reform 9

Setting a new direction 10

The impacts of reform 12

Challenges for the industry and regulator 15

The benefits for consumers 15

Implementing reform 16

List of recommendations 17

Introduction 38

1.1 Inquiry background 38

1.2 Scope of the inquiry 38

1.3 The inquiry’s approach 40

1.4 The inquiry’s methodology 41

1.5 Inquiry activities since the Draft Report 42

1.6 Guide to the Final Report 44

Developing the inquiry’s vision for the industry 45

1.7 Key problems identified 45

1.8 Major components of the draft reform package 51

1.9 Broad overview of responses to the Draft Report 54

Taxi licensing and zones 58

Taxi licensing 58

1.10 Inquiry’s views in the Draft Report 58

1.11 Issues raised in submissions 60

1.12 Inquiry’s response to submissions 66

1.13 Inquiry’s views in Draft Report 81

1.14 Issues raised in submissions 82

1.15 Inquiry’s response to submissions 85

1.16 Final recommendations 88

Hire cars 91

1.17 Inquiry’s views in Draft Report 91

1.18 Issues raised in submissions 93

1.19 Inquiry’s response to submissions 96

1.20 The new RH category 98

1.21 Final recommendations 101

More diverse and better vehicles 105

1.22 Inquiry’s views in Draft Report 105

1.23 Issues raised in submissions 107

1.24 Inquiry’s response to submissions 109

1.25 Final recommendations 113

More networks and more choices for taxi businesses 116

1.26 Inquiry’s views in Draft Report 116

1.27 Issues raised in submissions 118

1.28 Inquiry’s response to submissions 120

1.29 Final recommendations 120

Better quality drivers 123

1.30 Inquiry’s views in Draft Report 123

1.31 Issues raised in submissions 127

1.32 Inquiry’s response to submissions 129

1.33 Final recommendations 136

Customer and driver safety 140

1.34 Inquiry’s views in Draft Report 140

1.35 Issues raised in submissions 141

1.36 Inquiry’s response to submissions 143

1.37 Final recommendations 144

Greater responsibility for performance 146

1.38 Inquiry’s views in Draft Report 146

3.2 Issues raised in submissions 166

3.3 Final recommendations 167

4.3 Inquiry’s response to submissions 174

4.4 Final recommendations 176

Taxi fares: competition and regulation 178

Should fares be regulated? 178

4.5 Inquiry’s views in Draft Report 178

Changing terminology

The inquiry is recommending the replacement of the existing taxi industry accreditation scheme with a more streamlined, less costly and more accountable permit scheme (see chapter 9). This scheme changes the current terminology applying to some elements of the industry. This report and the inquiry’s final recommendations adopt the proposed new terminology.

Current: Licence holder

Proposed: Licence holder  applies only to current licence holders who choose to not operate their vehicles

Current: Taxi licence holder, Responsible person / assignee, Taxi operator, Hire car operator

Proposed: Commercial passenger vehicle permit holder  applies to existing licence holders who operate a vehicle, purchasers of new licences and existing taxi and hire car operators

Current: Network Service Provider

Proposed: Authorised Taxi Organisation (ATO)

Current: Hire car

Proposed: Broad category: Hire car

Proposed: Sub-categories:

Pre-Booked Only cab (PBO) – permitted to do commercial pre-booked work anywhere in their zone

Stretched vehicle – holder of a limousine or stretched vehicle permitted to do commercial pre-booked work anywhere in their zone, excluding airports

Registered Hire vehicle – a registered operator of special category vehicles.

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