A new report by Professor David Cousins and former ACCC head Professor Allan Fels has found that Western Australians taxi users are being ripped-off by the deliberate rationing of taxi plate numbers by the State Government, which has inflated taxi fares by some 16%. From WA Today:
“Inclusion of the lease value of licences in the calculation of fares means that fares are around 16 per cent higher than they should be and that customers are paying around $3.30 more for an average trip as a result,” the report said…
“When a driver leases a licence from someone, that cost is represented in the fare formula. So that’s adding that 16 per cent to the set price, the maximum price which, of course, all drivers charge.
“So, whenever you get into a cab, you could be paying $3.30 for a piece of paper that some investor owns, and that’s the licence.
“This is a system that benefits the licence holder.
“It’s a terrible system…
The report found 84 per cent of survey respondents had at least one negative association with the industry, and six out of 10 experienced a problem with taxis in the last 12 months.
Of course, nobody should be surprised by these findings, which have been played-out to similar effects across Australia.
The deliberate undersupply of taxis has generally meant there is minimal incentive to improve performance and provide better services. It has also driven a wedge between the driver, who typically earns a pittance, and the customer, who pays too much for the service.
As with land, the rental value component of taxi fares goes to the owners of the plates, just like rents on land. So taxi drivers are typically left paying the licence holder an exorbitant share of their fares – often 50% – leaving them with little left over. Of course, customers are also left paying high prices for (often) poor service.
Thankfully, the report recommends a comprehensive overhaul of the Western Australian taxi licencing system, including the sale of licences for $10,000 a year and no longer restricting how many are sold.
By increasing the supply of taxi licences and lowering their cost, more drivers would be able to purchase their own licence, operate independently, and keep more of what they earn. Customers would also benefit from more taxis being available and potentially lower fares.
The big losers from the proposed reforms would be the current taxi licence holders, who will see the value of their licences fall as the monopoly over licence numbers is broken – akin to what would happen to land holders in the event that urban land supply and infrastructure provision was significantly increased, and planning rules liberalised.
Ultimately, restrictions on taxi licences serve no useful purpose and are a relic from Australia’s protectionist past. Far better to set performance standards and allow anyone who wants a taxi licence to obtain one, subject to meeting those standards.
The entry of Uber-X’s ridesharing service into Western Australia in May should also benefit drivers and consumers alike.
As argued previously, ride-sharing would provide greater choice to consumers and lower transport costs, while also improving productivity by facilitating a more efficient use of the existing transport fleet. It would also offer drivers greater options to derive an income, without paying exorbitant licence fees or rents to taxi plate owners.
Unfortunately, the Western Australian Department of Transport has been issuing infringement notices to Uber-X drivers for failing to use vehicles licensed as taxis or omnibus vehicles under the Transport Co-ordination Act 1966.
Taxi Industry Forum WA chief executive Howard Lance has also expressed disappointment at some taxi drivers who have been moonlighting as Uber drivers, presumably because they can earn more money without paying taxi plate owners extortionate rents.
Overall, Western Australians should be free to choose their transport options, not have them limited by the government for the purposes of protecting the taxi industry, leaving both consumers and drivers worse-off.
