21/11/2006 - 21:00

Flawed structure to whose benefit?

21/11/2006 - 21:00


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Last week, we tried to look at the nuts and bolts of the taxi industry, which has been struggling under a yoke of over-regulation for at least a decade.

Flawed structure to whose benefit?

Last week, we tried to look at the nuts and bolts of the taxi industry, which has been struggling under a yoke of over-regulation for at least a decade.

Right now, drivers may well be having a good patch due to the economic boom, but the structure of the industry remains inherently flawed.

This is not something I blame the current state government for.

It was a decision made many years ago to privatise the ownership of taxi licence plates, which has led to this mess; one that will cost $200 million or more to clean up.

Previously, the full privatisation of plate ownership was restricted to taxi owners, which mainly consisted of drivers and former drivers.

While this system was also wrong, in my view, the linking of plate and car ownership limited the pool of investors and therefore dampened demand for the plates.

This meant the impact on the industry in terms of cost was limited.

This changed when that side of the industry was deregulated in isolation, creating lopsided market where plates, which could be freely traded, soared in value mainly due to overly restrictive controls on new plate releases.

But when assets soar in value, their owners want a better return on their capital, so they charged more for leasing them. These days, the plates cost around $330 a week to lease.

It’s $330 a week that the taxi drivers have to find, before fuel, the cost of the taxi itself and paying themselves an income.

More importantly, it’s $330 for nothing. My understanding is, the taxi plate owner plays no useful role in the industry, no matter how much they may have contributed in the past as an individual.

In effect, the previous government that made this decision gave away the power to charge a reasonable fee for licensing the industry, and then allowed it to run out of control.

It’s no different from any form of licences that can be traded beyond the people who actually participate in the industry.

Suddenly you create a whole new class of people who want to make a living from the industry, without doing anything.

The taxi sector is not the only area that has this ridiculous system, but it is arguably the one where its distortions are most obvious – adding another anti-competitive layer of membership, pushing the costs onto drivers and, ultimately consumers.

The result is a system that fails to meet predictable and regular peaks; where driver earnings have slumped to a point where it has become an undesirable job; and fares seem expensive even in a city where distance is a part of life.

This is not how it should work.

Licences are a way for governments to monitor and manage an industry, and they ought to operate on a cost-recovery basis.

In simple terms, the lower the regulatory inhibitions (including cost), the fewer barriers there are to entry and the more rapidly the industry will be able to respond to shifts in demand.

As part of this, licences should have a termination clause relating to time or industry participation – or some mechanism that makes it clear to the holder from the start that it is a licence to operate, not to make money.

Of course, the solution is not just as simple as getting rid of private plates; it is about delivering a transport system that will most easily meet the demands of consumers.


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