Taxi costs bound up in state’s plate mistake

IT is 2010, we live in a liberal Western democracy and yet the state is still setting taxi payment rates like it’s the old Soviet Union.

Last week, the state government announced metropolitan taxi fares will increase by 4.79 per cent after the annual fare review to ensure taxi drivers were adequately paid and operators could better meet their costs.

Independent accountants under the Metropolitan Taxi Fare Model review taxi fares annually; this is really true.

Based on the Taxi Industry Board’s recommendations, the MTFM was recently amended to ensure fares were adjusted in line with the annual movement in industry operating costs.

There are areas where the government seems to be needed, at times, to ensure vital services are maintained – price controls for the taxi industry are not among them.

The only reason the state needs to interfere is because it hamstrung the sector with a ridiculous licensing system that restricts the number of taxis on our roads and ensures millions of dollars a year goes to plate owners for doing absolutely nothing.

Without doubt there’s been a decline in the standard of our taxi drivers in recent years.

But the government has only itself to blame. In a boom economy there are lots of alternatives to this job, which requires the worker/self-employed operator to pay thousands of dollars a year to plate owners who offer nothing except a licence to operate.

I am not sure what the cost of plates is these days – I’ve seen one advertised for $315,000 – but in effect its owners expect a rate of return better than they could get elsewhere both in income and capital.

Drivers have to overcome the financial burden of high fuel costs and leasing or owning a car. But before they earn a living they have to pay plate owners too. This is like paying the mortgage on a small residential unit – without the benefit of getting to live there or gain in any financial way from it.

Naturally the burden of these costs adds to the reasons why taxis in Western Australia are expensive compared to many other places. So the state’s answer is to regulate prices.

Unfortunately, the plate fiasco is so bad that the government estimated it would cost about $200 million to buy itself out of the problem a few years ago. Just how lucrative these plates must be is amplified by the fact that the plate owners were not interested in the deal.

Somehow we need to find a way to solve this issue and free the industry from the twin problems of costly, useless licences and price controls. As a road-bound city with wide-open spaces, we need our taxi service to be better than something that harks from another era.

Default position

UNIONS WA boss Simone McGurk last week quite rightly described the proposed state government employees’ superannuation default fund as “a prize”.

The default fund is recommended as part of sweeping reforms that will most likely dismantle the state’s existing superannuation provider GESB, which currently holds a monopoly on $11 billion in WA government employee superannuation and pension funds.

The state government wants to offer choice to its employees, who are currently disadvantaged in that respect compared to private sector workers.

It also wants to outsource administration of certain funds that remain within its control due to the way they were established.

And it wants to find an external fund manager to be the default superannuation provider for employees who don’t choose to nominate their own when they are given the choice.

It is this last element to which Ms McGurk was referring, though as a representative of many of the state’s public servants she has concerns about all these changes.

The reason the default fund is considered a prize is reflective of human nature and the way markets work.

In effect, the default fund in any circumstances is a form of monopoly. That is because a huge proportion of employees are so complacent about their retirement savings that they don’t really care where 9 per cent of their earnings is placed and leave that decision to their employer.

In an industry where attracting members is very competitive, attaining default fund status is a competitive advantage.

As a representative of many government employees, Ms McGurk ought to want to see that default fund go to a worthy provider – one that is not just low-cost to the state (her members are taxpayers too) but will also give the best returns and service to members.

She is concerned that retaining GESB, as the existing or incumbent service provider, is not being considered as an alternative despite a performance track record Ms McGurk believes is strong.

There is a lot of conflict for the state in choosing this default fund, which is why offering choice to employees is smarter. People should take responsibility for their own savings, not expect the government to make the decision for them based on a set of other priorities.

There is also conflict for Ms McGurk. She sits on the board of Westscheme – a position that attracts a significant annual payment. Westscheme is a private sector superannuation player established by the Chamber of Commerce and Industry WA and the union movement, both of which have equal representatives on the board. Westscheme has admitted it is interested in becoming the state’s default fund manager if GESB is dismantled.

Employee representatives also have three board seats on GESB, which would most likely be a direct interest to unions. Many of GESB’s 200 employees would also be union members.

So choosing that default scheme – that so-called prize of the state’s superannuation – is a complex business for everyone.

Yet, at the beginning of the year, sweeping changes to our industrial relations system brought in so-called modern awards. As part of that huge change, the union-dominated and funded federal Labor government mandated certain default funds as part of the award.

In other words it actually chose the funds that were going to take the default ‘prize’, usually naming an industry fund as one of a couple of choices.

In most cases industry funds have strong links to the union movement from their foundation. Quite often, union officials past and present sit on industry fund boards, which pay healthy fees. I can’t tell you whether unionists or their industry counterparts pocket the funds personally or if the board fees are considered part of their overall remuneration. Either way it’s an attractive way of keeping people on the payroll or supplementing their own organisations’ expenses.

Just how the government decided that industry funds were the best performers in both returns and service to justify these ‘prize’ position is unknown to me and, from what I can tell, the rest the industry.

A few years ago, industry funds had a big advertising campaign claiming they performed better than their rival retail funds. Could the federal government have nominated those fund managers on the basis of an advertising campaign? I hope not.

I haven’t seen those advertisements running lately. Anyway, as we all know, past performance is not a reliable indicator of future performance.

So, on the matter of nominating default funds, I am wholly with Ms McGurk.

The decision to nominate a default fund is a serious business and ought to be done for the right reasons. Such a decision should not be about offering a political ‘prize’ any more than a financial one, whether it’s the state government or its federal counterpart making the choice.

• mark.pownall@wabn.com.au