Time to end this toxic taxi plate regime

28/05/2009 - 00:00


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Who’d be a taxi driver, particularly considering the current state of the industry?

Time to end this toxic taxi plate regime

RENT-SEEKING generally implies the extraction of uncompensated value from others without making any contribution to pruductivity.

While that is definition extracted directly from Wikipedia, I thought it was fair summary of how most would interpret the term.

I was reminded of it while listening to Premier Colin Barnett during morning talkback on ABC radio recently.

A caller rang in to ask complain that he was about to go broke because he'd been issued with multi-purpose taxi plates and then bought a vehicle on the strength of the market - just two days before the previous government issued a whole bunch of new peak period plates.

While I am extremely sympathetic to this man's cause, I find it fascinating that Mr Barnett has to deal with such nonsense.

The taxi industry in Western Australia has a long record of issues thanks to the ridiculous nature of the regulation that governs it.

The problem, in my view, is that the actual taxi licences - generally referred to as plates - were privatised and became part of an open market some time ago.

With government encouraged by the industry (dominated by plate owners) not to release more plates, the value of these licences escalated. In 1997 they were worth $217,000.

That much capital tied up in a piece of metal screwed on to a car is nonsense.

As a result, plate owners need to recover some of the cost of that capital, so they charge the people that use the licence hundreds of dollars a week for the privilege. That's hundreds of dollars for doing nothing. That is rent seeking.

Many drivers earn very little after paying for fuel, the car and the plates.

That has led to a toxic scenario for government. Every time it tries to release new plates in response to consumer demand the industry is hit - both the drivers who can't afford any more competition, and the plate owners who see their investment value fall.

A few years ago the industry rejected a government plan to buy-out the plates. In my view that was a mistake. It missed the opportunity to make something back on a bad investment with, from recollection, some $200 million on offer.

There is no reason for the government to be involved in the taxi industry other than to license the drivers and cars to make sure this form of public transport is safe. The market will easily be the judge of how many taxis are needed. It is not a complex business.

All the regulation in the world has not improved the service in the sector. Instead it has let the public down and created angles and rorts within licence categories that require even more administrative policing.

Anyway, I was pleased to hear the premier agrees with me.

Here is part of a transcript on the ABC720 interview with Geoff Hutchison.

"The whole history of the way in which we operate the taxi service in this state has been a mess," the premier said.

"We've had so many inquiries, reforms, people who have got the solution and they haven't and ... one of the problems, and I suspect it's part of callers' problems, is that so much of the business is tied up in buying the plate and you basically get even speculation in plates.

"I would much rather see that ... plate value phased out over a number of years and I even wouldn't mind seeing taxi drivers paid a bit more to be honest, for the work they actually do driving ... picking up people, in this case people in wheelchairs, and they're actually paid properly for that task rather than having to borrow, invest in plates which are a risk investment for them and in this case, it sounds like the caller probably lost a fair bit of capital, apart from losing his livelihood."

Of course, acknowledging there is an issue and doing something about are two very different things.

The problem is the only obvious way to fix this issue fairly is to buy out the taxi plate owners and start afresh.

Perth would be a lot better off with a free market for taxis in which drivers take home a lot more of the fare than they currently do.

Payroll payoff

THE above conversation with the premier was even more fruitful for me when the next caller questioned the state's latest initiative regarding payroll tax.

Readers may recall the recent budget move to provide small and medium business owners with payrolls up to $3.2 million with a one-off payroll tax rebate.

Employers with payrolls up to $1.6 million will be paid a one-off rebate to fully offset their 2009-10 payroll tax liabilities, up to a maximum of $46,750.

The rebate will be phased down for employers with a payroll between $1.6 million and $3.2 million.

A caller suggested that an employer could sack people to lower their payroll and therefore become eligible for this rebate.

While that may be an extreme example, it is quite plausible in this environment and, I expect, against the objective of the rebate. This concern also applies to businesses that want to employ people. For example, SMEs near the current thresholds may not want to employ additional people if it is going to boost their payroll tax liability and cause them to lose some or all of their rebate.

It is a pity that the rebate was not provided for the current financial year, during which businesses would have much less opportunity to consider manipulating their employment base in a way the government had not intended.

It would also have provided a potential financial windfall in the short-term, rather than leaving it until after 2009-10, encouraging employment at the most critical time in the financial crisis.


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