Taxi licence compensation sends the wrong message

Bookmark and Share Economics & Deregulation | Darcy Allen
Herald Sun 15th February, 2017

Lines of taxi drivers crawled across the Bolte Bridge in Melbourne on Monday. Their protest wasn't over pay, conditions or safety. It was over the size of their consumer-funded compensation handout as Victoria legalises Uber.

The transition from ageing taxis to innovators like Uber is inevitable and has forced governments to reconsider their cosy relationship with the taxi industry. Victoria's taxi licensing system will soon be scrapped and replaced with a single commercial licence for taxis, hire cars and ride-sharing services.

But before we quibble over the level of compensation taxi owners get, we need to ask this: why should they get any compensation at all?

After all, taxi licenses are government-granted privileges to restrict competition in transport.

There is abundant economic evidence that suggests taxi licences have raised the prices we pay for our journeys, while at the same time limiting our transport choices and reducing the quality of service.

For years the industry has benefited from government privileges through obtaining much higher profits than they would have done without those licences.

We've been paying "compensation" to taxi licence holders for decades.

Taxi licences are financial assets. Nobody who bought those assets should have believed they had a guaranteed return. All their value came from government policy, which was always at risk of changing. So who should bear the risk? Surely not the taxpayer.

Taxi licence holders knew they were receiving a privilege through government regulation, which could be taken away as easy as it was given.

Consumers may start to prefer Uber to taxis but, if so, that will be entirely because taxis are being out-competed by better, cheaper, higher quality transport

Let's be clear. The Victorian Government is not "picking winners" - favouring ride-sharing over taxis. Evidence suggests that since the introduction of ride-sharing, the growth in the taxi market has remained steady.

Even so, taxi licence holders believe the government's proposed compensation of $100,000 for the first licence and $50,000 for the second licence is inadequate.

Such a blanket approach, no matter the original price paid for the licence, has nothing to do with equity or hardship. It's a handout.

The compensation will be funded by a $2 levy on all taxi and Uber trips. That money will be pooled and distributed to licence holders at a total cost to consumers of about $453 million.

Taxi licensees want even more compensation, despite the fact that this generous package is already much bigger than the packages announced by other states.

In New South Wales, for instance, taxpayers are being slugged $20,000 per licence, which with a hardship fund combines to make a $250 million package.

It is certainly true that many people invested large amounts of money in taxi licences and their investments will suffer when the regulations come in.

It is entirely reasonable that the public feels some sympathy for them. Taxi licences were a bad investment. But the decisions of parliament must always consider the interests of consumers first, not special interests.

We should be extremely wary of the precedent that taxi licence compensation might set. Imagine paying every time governments wanted to make public policy changes.

Every day, new technologies enter and enrich our lives by disrupting old businesses. Good public policy understands that Australians are better off when we welcome new technologies.

It has been almost five years since Uber came to Australia. It's a worry that it takes five years for an innovative, beneficial, popular service to even establish the legal right to exist. Old incumbent industries watching these debates will learn one thing: it really does pay to spend time lobbying government for red tape on your competitors rather than adapting to new economic conditions. To stop this happening again, the core message for governments should be that red tape, once imposed, holds back competition, hurts consumers and costs us all money.

Institute of Public Affairs research has found that red tape costs our economy $176 billion each year. That prevents us from transitioning to modern, digitally empowered services.

More regulatory battles are coming. How will the government decide to regulate drones or driverless cars? Will it introduce complex red tape and licences, only to have to pay compensation decades down the track?

Policymakers must take a stand against taxis holding our finances to ransom and reject these claims of consumer-funded compensation.

 

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