Taxing times for taxis with Uber’s arrival

How would you go at your job if you had to pay someone else's mortgage off before you received any income? Would that be an incentive to turn up to work?

What if you were a self-employed small business person with expectations, at best, of earning around the median income level? How would you feel if you were saddled with the cost of servicing a $300,000 loan that someone else owed?

That is what it can be like to be a taxi driver in this state because those who drive the majority of the taxi fleet have plates attached that are worth $300,000 or thereabouts. That $300,000 cost is worthless for any reason other than the right it gives them to have a taxi.The owner of the plate probably bought it on the open market and expects to earn income from it, like a rental property.

Regrettably, this kind of industry - where earnings don't adequately match the hours involved - attracts the wrong sort of people: the most desperate, unskilled and least employable. Not all taxi drivers are bad, many are wonderful, but the system is weighted against them and service standards have drifted south as a result.

As I have written numerous times in my Business News column, here lies the problem in Perth's taxi industry that proves, yet again, the failure of monopolies. We need more taxis but the industry resists because plate owners see the value of their investment being hurt and taxi drivers who are already shelling out fees to the plate owner, for nothing, don't want competition to erode their already poor earnings.

Assuming a 6 per cent return is required for a plate, that's $18,000 a year in costs that must be met by the drivers of the vehicle attached to the plate. So for a car that has two drivers working in shifts, each has to pay $180 of their weekly earnings to cover the plate, as well as costs associated with the vehicle, fuel and cleaning.

If I am earning $70,000-$80,000 a year (and that may be the upside), then $9,000/year for nothing but the right to get on the road is a very expensive outlay.

That will be a big part of how Uber suggests it will undercut prices here by 30 per cent.

Also, Uber’s drivers can be flexible. They can have another job and drive people around when it suits them (and their customers).

Traditional taxi drivers can't do that so easily. If they have to pay $180 a week just for the right to drive a taxi, the incentive is for them to get it on the road to earn their income. The law is also very demanding as to how often taxis need to be available.

The challenge is how to take away the cost of plates and make the playing field more level, allowing traditional cabs to compete with share driving players like Uber. This argument was around long before Uber existed, its just that new technology is making that decision more important.

The easiest but most expensive option is for the government to buy back the plates, which would cost up to $300 million. That is ironic. The government sold these plates - with a monopolistic right attached that only a government could create - at a fraction of the cost that they would now have to buy them back at.

Alternatively, they could argue that plate owners have known this is coming for a long time and ramp up the release of more state-owned plates onto the market, undermining plate values and, in turn, the cost of leasing them.

Or they could just let Uber do that work for them.

See also: uberX launches illegally.