Thursday, June 13, 2013

Taxi changes put Victoria back at front of state reform pack

The Victorian Government's recently announced taxi reforms are an encouraging sign that Australian state governments can still initiate significant reforms.

In the 1990s, Victoria was a national leader in economic reform.  Whether it was deregulating shop trading hours, or privatising state-owned businesses, the Kennett Government set an agenda which has some other states still playing catch-up, with Sunday trading finally reaching Western Australia last year and Queensland and New South Wales currently contemplating asset sales.

The new Victorian taxi reforms follow a report from an Inquiry headed by Allan Fels, who made over one hundred recommendations about how to make the industry more customer-focused.  Given the long delay between Fels submitting his final report and the Government's response, there was much nervousness that the Government might be looking for a way of avoiding ''courageous'' reforms.  However, these fears were largely allayed when the package was announced.

The Government accepted Fels' most important recommendation:  as-of-right licensing.  No longer will potential new entrants to the taxi industry only have the option of purchasing a license from an existing plate-holder at an inflated price.  Instead, they will be able to get on the road after paying an annual fee.  Fels recommended that this annual fee be $20,000, but the Government, as some sort of consolation to industry incumbents, increased it to $22,000, and disappointingly announced that this figure would be indexed.  Ideally, the annual fee would fall over subsequent years, not rise.

However, while one can quibble about the detail, the Government has at least established the crucial principle that customer-demand, not industry incumbents, should decide how many new entrants there are.  A good gauge of the robustness of the reforms is that the taxi industry is very upset.

In one sense, it is hard not to have some sympathy for individuals who had not realised that a taxi license was not actually real property.  At a recent rally, one license plate-owner complained that what was happening was ''like buying a house as an investment property and the government wants to build a road through it.''  Actually, it's not like that at all.  A house, and the land on which it sits, is a real asset and if a government takes a real asset from someone that person is clearly entitled to compensation.  If, on the other hand, a government creates an artificial asset by issuing a license which restricts entrants to an industry, future governments have no obligation to sustain the mirage.  People who bought licenses were gambling that no government would have the courage to end a silly policy — in Victoria it looks like they have lost their bet.

In the wake of Fels' report, the value of a Melbourne taxi license fell from over $500,000 to around $350,000 and it remains to be seen where values will eventually settle once the Government's announced reforms are implemented.  In the short term, one bank is rating taxi licenses as having a zero value, something that the taxi industry has seized on to exaggerate the financial impact on license-holders.

The taxi reform package contains some other measures designed to liberalise the industry, including shifting from a regime where the Government prescribes exact fares to one where the Government prescribes maximum fares.  This new ability for taxis to provide discounts is a positive move, although equally appealing might have been allowing taxis to also charge a premium, either to get more taxis on the road at busier time, or to trigger the development of a fleet of higher standard cabs to appeal to the more affluent end of the potential taxi market.

There are also reforms to allow taxis to offer more flexible services such as share rides and set-route services.  Some of the restrictions around the operation of Pre-Booked Only vehicles (more commonly known as hire cars) have also been eased.  Until now, for a vehicle to have been eligible to be a hire car its value had to exceed the threshold for the luxury vehicle tax — now consumers will get to decide if the vehicle is up-to-scratch.

Not everything in the Fels Report, or the Government response, moved in the deregulatory direction.  There were a number of mandated changes to areas such as driver training, but hopefully over time it will be seen that a more customer-focused industry will not need to be forced to do things which produce better service outcomes.  The fact that these reforms are occurring when significant change is also being driven by the availability of apps that enable the consumer to order a hire vehicle without having to ring a depot, is an enormous advantage.  These apps allow consumers to rate the quality of the service and, if a driver consistently falls below certain standards, the app provider can query why.

Indisputably, other states' taxi industries have been afflicted with very similar problems to Victoria's.  Governments across Australia will no doubt be watching with interest to see how successful the Victorian Government is at overcoming industry opposition and implementing the changes smoothly.  And once implemented, they will be keen to see how quickly the positive benefits flow through to taxi customers.

If Australia is to regain the spirit of reform it exhibited in the 1980s and 1990s, the states and territories will have to be key players.  Tackling the entrenched vested interests of their taxi industries should be a key part of any reform agendas.

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