The owners of the 200 taxi plates in the ACT will be well pleased with the recommendations brought down last week (aug 9) by the NSW Independent Pricing and Regulatory Tribunal.
The ACT industry is under-going a similar review.
Taxi-plate owners throughout Australia have been ever watchful as competition policy knocks over bastion after monopolistic bastion. Strangely, the taxi industry has been strangely immune while other industries — telecommunications, parcel-delivery, electricity, water and so on – have been subjected to competition with huge benefits to consumers and economic efficiency.
The NSW review came to the correct economic and social conclusion. It said, “”Restricting the number of taxi and hire car licences generates no significant benefits for passengers, drivers, or anyone working in the industries other than the licence owners. . . . Regulation of the number of taxi licences serves no purpose in itself.”
Hear, hear.
But the tribunal then made a series of recommendations that essential leaves the present monopoly in position. It recommended a few extra licences, but limited them to six-years with no on-sale to “”protect existing plate-holders”. And put the thing in the too-hard basket, recommending that the Government look at the question of licence numbers again in 2005.
It will be just as hard then.
In the ACT the number of taxis is limited to 223. The government also regulates fares. This ensures that demand exceeds supply and that there is no pressure to reduce fares by new entrants into the taxi market.
It has resulted in the value of a taxi plate rising to about $250,000. That is just for the right to ply the streets. It does not include the cost of the car. The interest on that $250,000 is about $250,000 a year at business overdraft rates and is passed on to passengers. The trickle out of new plates has been so slow in the ACT that their value represents a capital gain. In short, the market has become more restrictive, not less so.
At least the ACT does not suffer the regulated driver changeover time that Sydney has causing taxi shortages in mid-afternoon.
There is precious little indirect competition to the taxis. ACTION buses are too intermittent. And there are only 25 licensed hire cars. Moreover, hire cars cannot ply the streets, nor stand in a rank, other than at the airport. Both ACTION and the hire cars are heavily regulated monopolies in themselves.
How do they get away with it? A big difficulty is that taxi drivers and taxi owners are well organised and have the ear of government and the bureaucracy. They also get plenty of on-road time to convince passengers, especially those in the power elites, that “”times is tuff” and “”we need regulation or we would go under”. That translates as a threat to campaign at election time if change is contemplated. Owners have plenty to lose. The $250,000 ”value” of their taxi plate is dependent purely on government legislation. It has no value in itself, unlike, say, the car the plate is attached to. So owners are likely to squeal loudly.
Mug passengers, on the other hand, have only a small amount to gain through deregulation so they are not going to die in a ditch or even change their vote on that score alone.
So the cosy monopoly continues.
In the ACT, the question is whether the review by Freehill Holingdale and Page takes the cue from the chair of the Australian Competition and Consumer Commission, Allan (ALLAN, 2L’s) Fels, that restriction is unnecessary, or whether it will funk it like its NSW counterpart.
An example of the muddled thinking in the NSW report is as follows: “”A fleet of taxis large enough to meet peak demand will carry significant excess capacity for long periods, making it difficult to recover sufficient fare revenue to meet taxi operating costs and pay a return of make lease payments on the value of a taxi licence plate.”
Well, if we got rid of the lease payments and interest payments on the taxi licence plate they would be able to cover costs and meet peak demand. But that would benefit only consumers, and who cares about them.
Then there is the plight of the disabled. There are only six large cabs in Canberra and 10,000 people in wheelchairs. Take away five of the cabs tied up with regular jobs in the two peak school runs and you have one wheel-chair cab for disabled people.
The government’s solution will be to issue another plate or two, without addressing the central problem. Demand is greater than supply and supply is artificially restricted by government legislation.
The only regulation needed is to ensure competence and safety of drivers and road-worthiness of vehicles. Testing should cost about $500 a year.
Drivers should be able to charge what they like, provided the consumer gets adequate information, and meters set and tested accordingly – much as fruit, vegetables and smallgoods are metered for weight. Good companies would get a good reputation soon enough. Companies could offer specials, discounts for regular use and other innovations, now not available.
There is simply no need for economic regulation. Does the Government determine how many clothing shops or food shops there should be in Canberra? They are both necessities. It does not regulate the number of pharmacies or optometrists. These are properly left to the market, that is for ordinary customers to determine.
The government cannot deregulate in one breath. That would not be fair to current plate holders. It cannot buy back the plates it one hit. It would cost $55 million. But it can set a timetable in which the industry will be ultimately deregulated, over five or 10 years.
It could steadily allow more plates to be auctioned with the proceeds being paid to existing plate-holders, on the understanding that everyone knows that the fee will be reduced to a purely nominal administrative fee in five or 10 years time.
That would be a much better solution than the one proposed by the NSW review. It stated the problem with elegance and then shied away from a solution.
The present system is a restraint of freedom to trade and does nothing for passengers. Owners, on the other hand, get the benefit of having an endless queue of customers.
Ultimately, the Government should give a taxi plate to anyone who has a roadworthy car and is a safe and competent driver. It should charge only for the independent testing of those things.
Few, if any, other market in Australia has a system where the Government restricts supply so that owners benefit to the detriment of consumers.