Deregulation Can Save The Taxi Industry From Itself

The regulation of Melbourne’s taxi industry was a mess from the beginning.

Taxis were new, smart and efficient when they were introduced in 1908, but they were a threat to the existing horse-drawn hackney cab lobby. As The Argus newspaper said, “once the Melbourne public has ridden in a taxi-cab it will ride on one always, in preference to the horse-drawn vehicle”.

The mechanical competition was an ominous challenge to the hackney cabs, so when the city council considered the new taxis, the hackney cabmen had demands. First they said the cars might scare the horses, and should not be let on Melbourne’s streets.

Then they said motorised cabs should share the ranks with the horses-drawn ones. That way customers wouldn’t have a choice as to whether to take the new cars or not. They could only take the next one in line.

The politicking between hackney drivers and the new taxi company meant it took the city council until October 1910 for the cars to get licences to ply their trade.

More than 100 years later, vested interests, and the outdated regulations those interests rely on, are still a serious impediment to taxi services in Melbourne.

If Ted Baillieu is searching for a serious reform to hang his hat on – and he should be – he’s found one with taxis.

The Premier has announced an apparently wide-ranging inquiry into Melbourne’s taxi system, headed by the former federal competition regulator Allan Fels.

Transport Department research suggests Victorians have more complaints about taxis than trains. And we hate trains.

But the real problem with Melbourne’s taxi fleet isn’t their lack of cleanliness. Or the poor language skills of drivers. Or their low salaries. Or that some drivers don’t know where they’re going – something which could, you would think, be resolved with a GPS unit.

The problem is there’s not much reason for taxi operators and owners to make them better.

State governments have artificially limited the number of taxi licences, virtually eliminating competition and with it the incentive to provide a better service.

The licensing system is one of the few remnants of our old, stale, highly regulated economy – a relic that should have been discarded when we discarded egg marketing boards and laws limiting how far you can transport bread.

But on it has trundled, until today, when the market price of a single taxi licence has blown out to $500,000.

That extraordinary figure should be all the evidence needed to suggest something is wrong with the system – half a million dollars for the privilege of driving drunks home at 4am.

Taxi journeys are expensive, yet driver salaries are low. Much of the difference between the two is the cost imposed by the limits on taxi licence numbers.

To compound all that, taxis have strictly regulated fares, which further reduces competition.

It’s not a system unique to Melbourne – taxi licences are limited and highly regulated in most places in Australia and around the world. And there’s an overwhelming consensus that this doesn’t work.

A few countries have bucked the trend. New Zealand has deregulated its taxi industry. So has Ireland, the Netherlands and Sweden. Darwin, too.

A comprehensive survey in 2006 by economists Adrian Moore and Ted Balaker concluded that taxi deregulation would be successful. And not just in theory – every case study Moore and Balaker canvassed found that deregulation worked.

Allan Fels said this week effective taxi licence reform could cut the cost of a ride by a third. The experience from overseas suggests this is not just possible, but likely.

Considering that the poor, the elderly and those with disabilities (in other words, people who cannot drive or afford a car) are disproportionately large users of taxis, reducing the price and improving the service would seem like an important task.

But taxi regulation has never been set by impartial governments seeking only the best thing for consumers.

Current licence owners have a lock on taxi policy. They will no doubt aggressively lobby against any attempt to eliminate licence limits. That’s understandable, because they bought licences in good faith, and paid a premium. Licences will have to be bought out or, at least, the limits phased out predictably over time.

That challenge should not be seen as an excuse to avoid reform.

Back in 1908, the frustrated manager of the new taxi organisation complained far and wide that “public convenience” was being “subordinated to the interests of hackney coach owners”.

The situation is not so different today.

No reform will be worthy of the name unless it tackles – for good – the archaic limited licence system which increases costs, reduces quality of service, and is rigged to favour just a few wealthy licence holders at the expense of drivers and consumers.