kpmg Department of Infrastructure National Competition Policy review of Taxi-cab and Small Commercial Passenger Vehicle Legislation KPMG Consulting 26 July 1999 This report contains 17J pages Appendices contain 12 pages D0I99-fmalWRDOO611-mr.doc kpmg Department ofInfrastnu:tun NCP Review ofTaxicob Legislation KPMGConsulting 26July 1999 Contents Executive Summary Overview of conclusions and recommendations 5 7 1 1.1 1.2 1.3 1.4 1.5 Introduction National Competition Policy process Terms of reference The conduct of the review Outline of the report Disclaimer 10 10 11 12 13 14 2 2.1 2.2 2.3 2.4 The Victorian taxi-cab, hire car and other small commercial passenger vehicle industry Nature of the industry Role within the public transport system Impact on tourism Victorian Taxi Directorate 15 15 26 28 29 3 3.1 3.2 3.3 3.4 Regulatory framework and restrictions on competition Relevant markets for taxi-cabs and other small commercial passenger vehicles Transport Act 1983 and Regulations Other commercial passenger vehicles Summary of restrictions 31 31 33 41 44 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 Effect of restrictions on competition on industry performance Introduction Driver and vehicle standards Licence values Assignments Profits Availability Service differentiation and innovation Impact on hire cars 46 46 48 51 57 58 63 67 68 5 5.1 5.2 Objectives of taxi-cab and commercial passenger vehicle legislation Historical context Market failures 70 70 73 NCP Taxi KPMGFmaJ Report.doc kpmg Deportment ofInjrrJstnu:ture NCP Review ofTaxicab Legislation KPMG Consulting 26 Ju ly 1999 5.3 Conclusions 81 6 6.1 6.2 6.3 6.4 6.5 Restrictions on entry Introduction Licensing of commercial passenger vehicles Net benefits and costs from public interest restriction on taxi-cabs Net benefits from public interest restrictions on other small commercial passenger vehicles Net benefits of zoning restrictions 82 82 82 83 94 95 7 7.1 7.2 7.3 7.4 Restrictions on inter-modal competition Introduction Net benefits from restrictions on SCPVs competing with public transport Net benefits from restrictions on taxi-cabs and hire cars Other restrictions 99 99 99 100 101 8 8.1 Restrictions on price Introduction Legislative provisions and effects Net benefits of fare regulation Conclusions 102 102 102 103 107 8.2 8.3 8.4 9 9.1 9.2 9.3 9.4 9.5 Restrictions on quality of service Introduction Legislative provisions Net benefits of occupational regulation of drivers Net benefits of qual ity controls on taxi-cabs Quality controls on other SCPV s 108 108 108 111 112 118 10 10.1 10.2 10.3 10.4 10.5 Alternatives and reform options Introduction National and international experience with taxi-cab and other SCPV reform Small commercial passenger vehicle regulation models Quality of service restrictions Impediments to reform 120 120 120 128 140 141 11 11.1 11.2 11.3 Other issues Quality and remuneration of drivers Disabled passengers and the Multi Purpose Taxi Program Melbourne Combined Maxi Taxis and the Central Booking Service 147 147 148 148 NCP TBXi KPMGFmal Report.doc kpmg Department ofInjrastrudure NCP Review ofTaxicab Legislation KPMGConsulting 26 July 1999 12 12.1 12.2 Conclusions and recommendations Preferred model Summary of recommendations 150 152 154 Appendix A - Submissions Appendix B - Summary of the Transport (Taxi-cab) Regulations 1994 Appendix C - Calculation of effect of supply restriction The basic model Derivation of effects of supply restriction Sensitivity of results 157 160 163 163 164 166 Appendix D - References Index of figures Figure 2.1 The Victorian Taxi-cab Industry Figure 2.2 Other segments of the SCPV industry Figure 2.3 Demand for Black Cabs Combined Taxis, booking only Figure 4.1 Real and nominal licence values, Metropolitan taxi-cabs, 1989/90prices Figure 4.2 Real taxi-cab fares (1998 dollars) and licence values Figure 4.3 Taxi fares and private motoring costs Figure 6.1 Effect of supply restriction in Greater Melbourne 167 16 17 24 55 60 61 92 Index of boxes Box Box Box Box 4.1 Economic impact of the issuing of 100 HOY licences 5.1 Types of market failure 5.2 Economic theory and cruising taxi-cab markets 10.1 Deregulation of entry of hire cars in Adelaide 54 74 77 138 Index of tables Table 2.1 Taxi-cab distribution in Victoria, 1999 Table 2.2 Taxi-cabs and depots, 1999 Table 2.3 Hire Car Licences, 1995 -1998, Yictoria Table 2.4 RHVs, 1995 - 1998, Victoria Table 2.5 SPVs, 1995 - 1998, Victoria Table 2.6 Number of cabs and depot fees in the Metropolitan and surrounding areas Table 2.7 Comparative public transport statistics Table 3.1 Summary of provisions of division 5 of the Transport Act. Table 3.2 Summary of licence conditions for SCPVs Table 3.3 Metropolitan Hire Car applications Table 3.4 Country Hire Car applications 18 18 19 20 20 22 27 34 42 43 43 NCP Taxi KPMG Final Reportdoc kpmg DepartmentofIn~tu1'e NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 Table 3.5 Summary of restrictions on competition 45 Table 4.1 Industry Performance 46 Table 4.2 Taxi-cab sector statistics - 1998 48 Table 4.3 Comparison of driver incomes 50 Table 4.4 Estimates of driver remuneration 50 Table 4.5 Licence and demand indicators for Metropolitan region 53 Table 4.6 Taxi Licence values in selected country areas, 1998 .56 Table 4.7 Changes in prices for Victorian taxi-cabs 1981-1998 .59 Table 4.8 The impact of higher vehicle utilisation on costs 63 Table 4.9 Time of DaylNigbt respondents waited more than 10115 minutes for a taxi-cab 66 Table 4.10 Proportion of taxi-cabs in operation, percentage 66 Table 6.1 Parameters used in the calculation of welfare loss from above competitive pricing and entry restriction 90 Table 6.2 Base case results for net licence value equal to zero 91 Table 6.3 Impact of licence values on "deadweight" losses 93 Table 9.1 Restrictions on quality of service 110 Table 9.2 Estimate of financial costs of quality controls 113 Table 9.3 Costs and benefits oftaxi-cab quality restrictions 1l5 Table 10.1 Overview of regulatory options 129 Table 10.2 Impact of existing legislation and regulations 131 Table 10.3 Impact of open entry, no fare regulation, no quality regulation 132 Table 10.4 Impact of open entry, no fare setting, regulated quality 134 Table 10.5 Impact of open entry, fare regulation, service quality regulation 136 Table 10.6 Impact of partial open entry, partial fare regulation, quality regulation I40 Table 10.7 Cost and benefits of compensation 145 Table 12.1 Recommendations 155 Table 12.2 Comparison oftaxi-cabs and other SCPVs 156 NCP Taxi KPMG Final Report.doc kpmg Departm~nJ ofIn~tuTe NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 Executive Summary This review was commissioned by the (Victorian) Minister for Roads and Ports to examine the case for reform of legislative restrictions on competition contained in the Transport Act 1983 - Part 6 Division 5 (Commercial Passenger Vehicles), the Transport (Taxi-cab) Regulations 1994 and the Transport (Passenger Vehicles) Regulations 1994. The review was in response to the requirements of National Competition Policy. In line with the provisions of the Competition Principles Agreement, signed by the Premier and other Australian government leaders in April 1995, the review has considered the objectives of the small commercial passenger vehicle (SCPV) legislation, the restrictions on competition contained in the legislation, the benefits and costs of these restrictions and alternative, more efficient, ways to achieve the objectives. A Steering Committee, chaired by Rob McQuillen, oversaw the review. Other members of the Steering Committee were Jennifer Fraser (Department of Premier and Cabinet), Robert Wright (Department of Treasury and Finance), and Lawrie Tooher (Department of Infrastructure). The Steering Committee appointed KPMG Consulting to assist it in conducting the review. The consultants were David Cousins and Warwick Davis. Ian Radbone from the University of South Australia also commented on a draft of this report. The review was advertised widely in the State. A Discussion Paper was issued to assist public consultation. Consultations with key stakeholders were held and written submissions received. KPMG prepared both a Draft Report and Final Report. These were commented on by the Steering Committee. The views expressed in this Final Report are, however, those of KPMG and are not necessarily all shared equally by the Steering Committee. The Report provides a summary of the legislation and the background to it. The legislation is considered to have the following objectives: • • • to minimise safety risks to passengers and drivers; to prevent monopoly pricing and consumer exploitation (consumer protection); and to promote a positive image for the tourism industry. There is also evidence to suggest that a further equity related objective is to ensure that all consumers are able to obtain access to passenger transport services. The legislation addresses market failures in relation to the asymmetry of information between operators of SCPVs and their passengers , and problems of monopoly power in relation to taxi-cabs. NCP Taxi KPMG Final Report.doc - 26 July 1999 5 kpmg Deparlment oflnjrastructure NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 . The markets identified were categorised as the 'cruising' and 'rank' passenger transport. markets (cruising market) in which taxi-cabs currently operate, and 'pre-booked' markets in which hire cars and other SCPVs also operate. Markets were considered to be regional in nature. The Report.separates the restrictions on competition into four categories: • • 'public interest' limitations on entry of SCPVs (including taxi-cabs); inter-modal restrictions affecting competition between SCPVs and public transport, and between various categories of SCPV; price restrictions affecting taxi-cabs; and quality controls, which affect all classes of SCPV. • • The review concluded that, on balance, the public interest restrictions on entry and many of the inter-modal restrictions do not provide net benefits to the community. The regulation of fares was seen as currently delivering net costs, although potentially there is a case for fare regulation to provide net benefits. Most of the existing quality controls were seen to provide net benefits. The Report briefly examines interstate and overseas experience with reform of the SCPV sector. We examined four regulatory options or models (in addition to the current system) for consideration in Victoria. These are characterised as follows: • • • • Removal of all industry-specific legislation; Removal of public interest entry regulation and fare regulation; Removal of public interest entry regulation; and Partial removal of public interest entry regulation. Policy recommendations put forward for consideration by Government include: • removal of public interest entry restrictions on all forms of SCPV, while maintaining current quality controls; a move of taxi-cab fare-setting powers to depots, who would have their fares assessed for reasonableness by an independent party (such as the Office of the Regulator-General); a relaxation of requirements necessary to become an 'approved depot'; • • NCP Taxi KPMG Final Report.doc - 26 July 1999 6 kpmg Department o/InfrtJstruelure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 . • • a removal of taxi-cab zoning (including the Outer-suburban zone); a removal of the prohibition on route services where public transport service is not operating, or where the service is provided under a public transport contract; and an alignment of vehicle quality controls between hire cars and taxi-cabs; and establishment of a standard set of licence conditions for operation in cruising and prebooked markets. • • Overview of conclusions and recommendations The Victorian small commercial passenger vehicle industry (incorporating taxi-cabs, hire cars, restricted hire vehicles and special purpose vehicles) is characterised by high levels of regulation on entry, quality and price. The purpose of this review has been to determine whether the costs of this regulation outweigh the benefits, and whether the objectives of the regulation could be achieved in less restrictive, more efficient ways. The performance of the taxi industry has been characterised by spiralling licence values (from $26,800 in 1981 to over $260,000 in 1998 in nominal terms) and an inability to service peak demands. These high licence values are symptomatic of the high profits that continue to be made by owners of licences. The quality of the service provided otherwise has been perceived as good, with recent reforms on vehicle and driver (including vehicle livery) being well accepted by consumers and taxi operators. Hire cars, restricted hire and special purpose vehicles are other categories of small commercial passenger vehicle licensed to operate in Victoria. The restrictions on taxi licences have resulted in regulations designed to ensure that these other categories of vehicle do not compete with taxi-cabs (such as vehicle standards), or even among themselves (in licence conditions which restrict the type of work they can do). Fundamentally, we see there are two major markets for SCPVs; a 'cruising' market in which vehicles ply for hire or stand at ranks for custom, and a 'pre-booked' market in which services are ordered prior to the journey by phone. The risks associated with operation in these markets are different and they should be regulated differently. Our analysis of costs and benefits has shown that regulation imposes significant costs on consumers with the beneficiaries of this regulation being those who have purchased licences to operate at lower than their capitalised value. Consumers pay more for taxi services and subsequently consume fewer of these than is preferable. Specifically in the Melbourne and Outer suburban areas, we estimated that the costs of public interest and fare restrictions on taxi-cabs to be $72 million per year. Consumers pay almost $3 more on an average taxi fare than would be the case where there were no public interest restrictions on entry. Consumers also lose from longer waiting times than necessary (particularly at peak times), and restrictions on the types of service available. NCPTaxi KPMGFinal Report.doc- 26 July 1999 7 kpmg Deptu1menl ofInfrastructure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 Table El Annual costs and benefits of restricted entry in Greater Melbourne (taxi-cabs only) Consumers Licence owners Society lose gain loses $72.1 million $66.1 million $6 million (value of lost trips) Extending this across the whole of Victoria, and incorporating the costs associated with restricted entry into hire cars we could estimate that the total cost to consumers could exceed $85 million per year, and the value of lost trips $7 million per year. These estimates are considered to be conservative. The restrictions also have negative equity impacts, as evidence suggests that lower-income groups spend more as a percentage of their income on taxi fares than do higher-income groups. We found that there are few public benefits (other than higher profits accroing to licence owners) resulting from public interest restrictions on entry. The Victorian Taxi Association submission focused on the problems associated with deregulation in other countries, but did not provide significant evidence on the benefits generated by existing regulations. There is simply no compelling case to restrict entry into the cruising or pre-booked market (incorporating all vehicles) by limiting the availability of licences on 'public interest' grounds. While there has been a case made before for the deregulation of taxi fares (Trade Practices Commission (1993) and Industry Commission (1994», we consider that there are short-term obstacles to effective fare competition. Until effective competition can be introduced, the regulation of fares charged by operators in cruising markets (taxi-cabs) can have benefits that outweigh costs. We argue that fare regulation is currently problematic and has contributed to the high costs of public interest restrictions on entry. Consumers need to be protected from opportunistic exploitation and fare controls can provide this. We consider that allowing depots to post prices which must be assessed for reasonableness by an independent regulator (we suggest the Office of the Regulation General) provides for flexibility while ensuring consumers are not exploited. In the long term, as effective competition is introduced, these requirements can be removed. This is a less restrictive alternative to existing regulation that will continue to meet the objectives of the legislation. Quality controls, such as driver and vehicle minimum standards, remain essential in cruising and pre-booked markets. We note that the 'problems' quoted by opponents of open entry mostly relate to either lax quality controls (as in London 'mini-cabs' and the United States) or lax enforcement of quality controls. NCP Taxi KPMG Fmal Report.doc - 26 July 1999 8 kpmg Department ofInfrastructure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 We consider the best approach to removing unnecessary restrictions on competition is to compensate existing licence owners, and recover these costs by issuing annual licences at a price commensurate with existing assignment values. Under this scheme, consumers will not benefit immediately, but once the compensation has been fully paid for, there will be significant room for fares to fall. Currently with licence assignment values at close to $20,000 per year, taxi operators must recover almost 5 'average' fares per day (1700 per year) before other costs of vehicle operation and driver remuneration can begin to be recovered. In addition, our analysis suggests that lower prices would result in more taxi travel (in the order of 18% more trips), and could expand employment opportunities by 1,000-1,300 persons given an existing employment level of 6,500-9,000 drivers. As relatively lower-skilled jobs, these employment opportunities might be considered particularly important. The conclusions and recommendations are further discussed in section 12 of the Report. NCP Taxi KPMG Final Report.doc - 26 July 1999 9 kpmg Depa11mem ofIn.frrzstnutun NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 1 1.1 Introduction National Competition Policy process National Competition Policy represents a commitment by Australian governments to a consistent national approach to fostering greater economic efficiencyI and improving the overall competitiveness of the economy, with a view to achieving higher rates of economic and employment growth. National Competition Policy was given effect to by a number of agreements signed by Commonwealth and State/Territory leaders in April 1995. One element of the Competition Principles Agreement was the establishment of a process to review and reform all legislation that restricted competition by the year 2000. This review process covers existing and new legislation. In Victoria, this entailed the review of some 400 pieces of existing legislation, including the Transport Act and Regulations. The guiding legislative principle in the Competition Principles Agreement is that: legislation should not restrict competition unless it can be demonstrated that: (a) the benefits ofthe restriction to the community as a whole outweigh the costs; and (b) the objectives of the legislation can only be achieved by restricting competition. The Competition Principles Agreement requires that legislation reviews should: 1. Clarify the objectives of the legislation. 2. Identify the nature of the restriction on competition. 3. Analyse the likely effect of the restriction on competition and on the economy generally. 4. Assess and balance the costs and benefits of the restriction. 5. Consider alternative means for achieving the same results including non-legislative approaches. The Victorian Government has developed a detailed set of Guidelines) to assist those undertaking NCP legislative reviews. These Guidelines were followed in undertaking this review. These Guidelines note that there must be a presumption against statutory intervention and the onus should be on the proponent of intervention. J Department of Premier and Cabinet. Guidelines - Review ofLegislative Restrictions on Competition. November 1996. NCP Taxi KPMG Final Report.doc - 26 July 1999 10 kpmg Department oflnfmstructun NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 The focus on reviewing legislative, or public, restrictions on competition is complementary to the wider application of the Trade Practices Act 1974 to cover all business irrespective of the nature of ownership and organisational form that was also implemented as part of National Competition Policy. The Trade Practices Act covers private restrictions on competition. 1.2 Terms of reference The review has been commissioned by the Victorian Minister for Roads and Ports to examine the case for reform of legislative restrictions on competition contained in the: • Transport Act 1983 (Transport Act) - Part 6 Division 5 (Conunercial Passenger Vehicles); Transport (Taxi-cab) Regulations 1994; and Transport (Passenger Vehicles) Regulations 1994; • • as they relate to taxi-cabs, hire cars and other small commercial passenger vehicles (SCPVs) with a seating capacity of up to 12 passengers (including the driver). The review was conducted in accordance with the Model 2 process (semi-public review) outlined in the Victorian Government's Guidelines for the Review of Legislative Restrictions on Competition. In particular, the review was required to document and develop evidence and findings which: • clarify the objectives of the Transport Act and related regulations in the context of the small commercial passenger service industry; identify the nature of restrictions on competition contained in the Act and regulations which relate to small commercial passenger vehicles; analyse the likely effect of the restrictions on competition on the small commercial passenger service industry and the economy in general; assess and balance the costs and benefits of the restrictions in the context of the objectives of the legislation; identify and assess alternative means of achieving the objectives of the legislation, including non-legislative means; and support recommendations to be provided in its final report regarding reforms to the current legislation, including where appropriate, alternative non-legislative means of achieving the objectives of the legislation. • • • • • NCP Taxi KPMG Fmal Report.doc - 26 July 1999 11 kpmg Dqartm.nt ofInjrastructuTe NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 The review is one of a series of reviews of components of the Transport Act 1983. (This review was conducted concurrently with a review of towing regulation.) Though commissioned separately, the Government will need to maintain consistent policy across the sector. To assist the Government, the review was required, in addition to following the Guidelines, to take into account the work and findings of the competition policy review of legislative restrictions applying to large commercial passenger vehicles (ie. vehicles with a seating capacity of 13 or more people), commissioned by the Minister for Transport, which was expected to be completed during the course of the current review. To the extent possible, the findings and recommendations of the two reviews were to be compatible in the context of the broader commercial passenger service industry. The review was also required to take into account the interdependence of the different segments within the small commercial passenger service market (ie. taxi-cabs, hire cars, special purpose vehicles (SPVs) and restricted hire vehicles (RHVs)) and ensure that any proposals arising from the review were designed to produce integrated outcomes for the sector. In examining options for reform the review took into account the role of taxi-cabs in providing safe and efficient transport to the public and other consumers. 1.3 The conduct of the review The review commenced in January 1999 with the preparation of a discussion paper. The availability of this paper was advertised and submissions to the review requested. In all, 49 submissions were received from a wide range of sources, with the majority from industry participants including: • • • • • • • • • Victorian Taxi Association (VTA); Hire Car Association of Victoria; Special purpose vehicle Sector; Taxi Industry Council of Australia; Victorian Taxi Driver's Association; Geelong and Districts Taxi and Hire-ear Drivers ' Association; Transport Workers' Union; Victorian Taxi Owners Group; Taxi-cab operators; NCP Taxi KPMG Fmal Report.doc - 26 July 1999 12 kpmg Department o/lnfrastruelure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 • • Owner-drivers; and Accessible Transport Consultative Committee. A full list of submissions is provided in Appendix A. Consultation with the major industry bodies was undertaken in January and February 1999. This included representation from licence owners and depots, taxi-cab drivers and disabled groups. The report was prepared based on submissions, consultations and desk research and took account of comments by the Steering Committee. 1.4 Outline of the report Section 2 looks at the Victorian taxi-cab, hire car and other small commercial passenger vehicle (SCPY) industry. It provides broad background on the industry structure and looks at basic demand characteristics. Section 3 looks at the regulatory framework and restrictions on competition. It identifies relevant markets for analysis. Section 4 examines the effect of the identified restrictions on competition on SCPY industry performance. Section 5 identifies the objectives of the Transport Act in relation to taxi-cabs, hire cars and other SCPYs, and identifies relevant market failures. Section 6 examines the effect of restrictions on entry into various markets, including through restrictions on the numbers of licensed taxi-cabs and hire cars, and zoning provisions. Section 7 looks at restrictions on inter-modal competition - that is, restrictions that prevent competition between taxi-cabs, hire cars, other small commercial passengers vehicles and other public transport such as trains, trams and buses. Section 8 analyses fare regulation in the taxi -cab industry as a restriction on competition. Section 9 looks at restrictions on the 'quality of service' provided by taxi-cabs and hire cars . Section 10 identifies reform options, including a review of passenger vehicle regulation overseas, and looks at different models of regulation. Section 11 examines other issues that were raised during the review process. Section 12 explains the conclusions and recommendations of the review. NCP Taxi KPMG Fmal Report.doc - 26 July 1999 13 kpmg Departm~nt ofInfrastructure NCP Review a/Taxicab Legislation KPMG Consulting 26 July 1999 Appendix A contains a list of submissions to the review. Appendix B contains a summary of the Transport (Taxi-cab) Regulations 1994. Appendix C provides further detail on the modelling of efficiency losses from taxi licensing in Greater Melbourne. Appendix D provides the references used in the report. 1.5 I>isclaiDmer In accordance with our company policy, we are obliged to advise that neither KPMG nor any member nor employee undertakes responsibility in any way to any organisation other than the Department of Infrastructure in respect of information set out in this report, including any errors or omissions arising through negligence or other cause. NCP Taxi KPMG Final Report.doc - 26 July 1999 14 kpmg Depar1memofIn,frastrudun NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 2 The Victorian taxi-cab, hire car and other small commercial passenger vehicle industry Nature of the industry Supply of small commercial passenger vehicles A commercial passenger vehicle is defined in the Transport Act as "any motor vehicle...which is used or intended to be used for carrying passengers for hire or reward.,,2 This definition does not include public commercial passenger vehicles, which are operated by the Public Transport Corporation (or privatised components), or other approved route service. An SCPV is a vehicle with a seating capacity of 12 or fewer. The Transport Act establishes several main categories of SCPV s: 2.1 2.1.1 1. Taxi-cabs, which are available for hire from a taxi-cab rank or by hailing in the street or by booking through a taxi-cab depot. 2. Private Hire Cars, which are large modem luxurious sedans or stretched limousines. They can only operate after being previously booked from the place of business of the owner. Private hire cars do not have meters and charges are negotiated with the customer. A hire car cannot accept hirings off the street. 3. Restricted Hire Vehicles (RHVs) are similar to Private Hire Cars except that only limited types of vehicles qualify for this licence type. These are: • • classic/vintage/veteran cars made before January 1943; vehicles which by the nature of their construction or equipment can provide a service that no other type of licensed vehicle can (eg. motorcycles, off-road four-wheeldrives, tourist buses); and vehicles more than 25 years old as gazetted by the Minister for Roads & Ports (none are currently gazetted). Special Purpose Vehicles (SPVs) are also similar to Private Hire Cars except they can only be licensed for specific purposes (eg. weddings, tourism activities). • 4. 2 TransportAct 1983, p. 66. NCP Taxi KPMG Fmal Report .doc - 261uly 1999 15 kpmg Department 0/Infrastructure NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 2.1.1.1 Overview Figure 2.1 provides a broad overview of the operation of the industry. It highlights the relationships between market participants, and provides an introduction to the following discussion of supply and demand of taxi-cabs and SCPVs. Figure 2.1 The Victorian Taxi-cab Industry .. Victorian Taxi Association Pat iodnstIy bcdy . rq=EIlta IGovernment I I IVictorian Taxi Directorate I ' Ua:Dsina.\'dIicIc c:Dlcb . m!mzmo:I>I R.egul81es dcpJlS llDd ~ ~ """" lia:Da:"""""" DepOtS ~ I Ploot~ }> the effect upon that existing service of the service proposed to be provided; and the fares paid by those passengers; • • • any reports by municipal councils or the Public Transport Corporation; the character, qualifications and financial stability of the applicant; and any other relevant matters. It is suggested that the nature of this test is contrary to principles of National Competition Policy. In general, the onus is on the applicant to demonstrate that the application would be in the public interest. NCP would suggest that the presumption should be on granting applications unless they are demonstrated by an independent regulator to be against the public interest. The licensing authority is also required to refuse a licence if granting it would be inconsistent with policy determinations made by the Minister. While there is a public interest test in place, new licence applications for the Metropolitan area are not effectively considered by the licensing authority. Licence applications for country areas are considered and evidence provided to the Review suggested the Victorian Taxi Directorate authorised the issuing of licences if demand conditions were present to sustain them.18 However, it is undoubtedly the case that licences are restricted in number in country markets. Other powers, contained in section 143A, allow the proclamation of certain areas as taxi-cab zones for the purpose of issuing licences. These provisions have been applied to create the Frankston and Dandenong (Outer suburban) taxi-cab-zones, as well as country zones. Licences specify that the picking up of passengers for journeys solely outside of these zones is prohibited. These provisions therefore restrict competition between taxi-cabs in different zones. 3.2.1.1 Regulations and Licence conditions The Regulations are quite detailed and prescriptive in relation to the appearance of taxi-cabs and behaviour of taxi-cab operators. These Regulations indicate obligations of taxi-cab licence holders, drivers, persons, hirers and passengers on a range of matters. They also refer to the powers of the Secretary of the Department and the Victoria Police. The Regulations are summarised in Appendix B with the numbers according to the Regulation numbers. lR Submissionof PeterTrost, p.3. NCP Taxi KPMGFinal Report.doc - 26 July 1999 36 kpmg Departm~nl o/lnfrastrueture NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 As a condition of the licence issued under the Transport Act, taxi-cabs: "may be hired by the public on demand and must be used so as to maintain regular and continuous service." The Victorian Taxi Directorate has indicated that it does not interpret this condition as requiring all taxi-cabs to be on the road 24 hours a day, but sufficient taxi-cabs must be in service to meet public demand at any time of the day. The VT A claimed that the obligation as a 'common carrier' was inherent in regulations that require a taxi-cab to: • • • • not refuse a hire, except under limited circumstances (reg. 22, 30); may not multiple hire without consent of other passengers (reg. 34(8»; may only charge for the metered fare for the journey (reg. 34(2»; and cannot ask for any fare other than that shown on the meter (reg . 34(2». The Association suggested that the "fact that a taxi-cab is a common carrier has important cost and hence competition implications.t'" It noted that because of this requirement: " hirers gain certainty of price in respect of a hiring; transactions costs to hirers are minimised; a lack of bargaining power, especially by the elderly and infirm, and tourists and other new purchasers does not lead to exploitation; consumers who lack a knowledge of the market are protected from price gouging; service delivery is uniform across the market; conflict among drivers, and between drivers and prospective hirers (especially hirers under the influence of alcohol) is minimised; the taxi-cab sector as a whole generales sufficient income to remain viable while providing essential infrastructure to service consumer needs on an efficient basis."w 19 Submission 20 ofVTA. p. 4. Submission ofVTA, p. 5. NCP Taxi KPMG Fmal Report.doc - 26 July 1999 37 kpmg Deportment o/lnfrrzstructun NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 The common carrier arguments are not completely convincing. Service refusals are mostly an outcome of fare regulation, that is, where the fares from a journey will not meet its costs there will always be incentive to refuse the fare in favour of a more profitable fare. Hence, the obligation can be considered under the costs and benefits of regulating fares in this manner. The only circumstances in which the obligation seems to apply is where a fare is refused for reasons other than price, for example, where a potential passenger is drunk. Another important licence condition is that a taxi-cab must charge only the fares and hiring rates approved by the Victorian Taxi Directorate. These rates are attached as a schedule to licences. These rates are fixed throughout the whole of Victoria (with a slight difference in the booking charge in country areas). No negotiation on these fares is permitted with the exception of journeys involving the carriage of passenger to or from further than 80 kilometres from the GPO described in the licence. Other significant licence conditions for taxi-cabs, which are discussed in more detail later in the report, include: • • • the taxi-cab must not run a regular service on any route; the taxi-cab must be fitted with a complying taxi-cab-meter; a requirement that leasing anangements (to another driver) cannot be made without Victorian Taxi Directorate approval. 3.2.2 Depots Taxi-cab depots are regulated by virtue of a licence condition for all Metropolitan, Urban, Outer-suburban and Country taxi-cabs. Condition 1.4 of these licences states that: 'The vehicle/a so licensed...must at all times be operated under radio control from a depot approved by the Victorian Taxi Directorate." Depot requirements are set out in the "Guidelines for Authorisation of a Taxi Depot" published by the Victorian Taxi Directorate. The basic requirement is that the applicant must demonstrate that the establishment of the depot will be in the public interest. Again it would appear that the spirit of this test is contrary to National Competition Policy principles, with the onus on applicants rather than the Directorate. To comply with this test the requirements of the Victorian Taxi Directorate are that the depots must: • submit a business plan of establishment arrangements; • provide a 24-hour monitoring service that includes driver warning facilities; comply with any code of practice requirements that the Victorian Taxi • be managed by an incorporated body • with directors subject to 'fit and proper NCP Taxi KPMG Final Report.doc- 26 July 1999 38 kpmg Deportment oflnj'rustrudure NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 person' tests; Directorate requires; _ operate on a 24-hour, 7 day-a-week _ maintain records to the satisfaction of the basis; Victorian Taxi Directorate; service all advanced bookings; • be responsible for ensuring that drivers meet the requirements of industry regulations; _ operate an independent communications _ carry out inspections on all taxi-cabs on a system with 24 hour two way quarterly basis, and ensure that vehicles do not breach licence conditions; communication to all operating vehicles; submit regular depot data reports; and • demonstrate an ability and commitment to discipline effectively drivers andlor operators who fail to meet government, industry or depot standards. _ It is clear from this list that depots are required to perform certain regulatory responsibilities in relation to their vehicles and drivers. Some of their requirements seem to relate to the common carrier notion of meeting all requests for service. We have a concern about the application of commercial criteria for depots, for example the requirement to submit a business plan. Such requirements involve considerable discretion by the licensing authority and do not appear to be closely related to the fundamental purpose of licensing which should, in our view, be to ensure minimum standards for vehicles and drivers. Depots also have a number of rules as a condition of membership. These rules are a source of contention for some in the industry." However, these rules are subject to the Trade Practices Act 1974 and are not themselves the subject of this review. During the course of the Review we requested copies of the rules of the individual depots. These were not provided although the VTA did provide a draft set of model rules for depots. This draft had not yet been approved by the ACCC. The requirement that all taxi-cabs must be operated under radio control may prevent taxicabs from exclusively operating from another form of network (i.e. mobile phone or pager). While some drivers do carry mobile phones, it is unclear as to the legal status of these arrangements - that is, whether a driver choosing to respond to a mobile phone call instead of a depot booked call could constitute a breach of the licence condition. 21 Many submissions to this Review expressed discontent with the current operation of depots. In particular, this has been in relation to the operation of 'bureau ' services and the holding (company) structure of the depots. It was claimed that this restricted competition between the depots. See submissions of Mr Peter Manikas, Mr Marcel Bugeja, Mr Vincent Maltese. NCP Taxi KPMG Final Report.doc - 26 July 1999 39 kpmg Department o/Infrrzstrueture NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 The Trade Practices Commission has acted to prevent depots prohibiting the use of mobile phones by their member vehicles. It would be inappropriate if the licensing authority in effect inhibited the use of mobile phones by drivers. \ 3.2.3 Drivers Drivers of taxi-cabs must hold a commercial passenger vehicle driver's certificate, which is issued by the Victorian Taxi Directorate. The Regulations provide for the Victorian Taxi Directorate to require an applicant to: • • • pass any test that relates to an applicant's fitness to drive a taxi-cab; undergo a medical exam; and undergo an eyesight test. The Victorian Taxi Directorate currently requires satisfactory medical and eyesight reports and the result of a national check of Police records against the applicant and a check of driving offences before issuing a driver's certificate. Drivers of Metropolitan taxi-cabs must also pass the Certificate Course in Taxi Driving and prerequisite tests in English Language and Numeracy Skills and a knowledge of Melbourne test (introduced in 1996). Currently there are 18,000 driver's certificates on issue by the Victorian Taxi Directorate. However, not all of these certificate holders are actually driving - one estimate suggested to us that there were approximately 6,750 drivers currently engaged in driving vehicles in the Metropolitan area.22 The VTA submission suggests that there are 9000 active drivers. 23 Many of these drivers will not have undertaken the training that new applicants must undergo. Drivers are generally contracted through the use of a 'Driver Leasing Agreement'. This has the status of a private contract between the taxi-cab operator and the driver, although at one stage it was compulsory to use a standard lease agreement. The agreement establishes the roles and responsibilities of drivers (lessees) and licence owners or assignees (lessors). Leases generally follow what is commonly known as the '50/50' rule. This is where the rent for the lease of the vehicle and the use of the licence is 50 per cent of all metered fares collected by the driver. Other costs may be incurred by drivers (e.g. insurance costs). Under the Regulations drivers are required to meet uniform costs. Drivers are not considered to be employees of licence owners or assignees. They are referred to as 'lessees' or 'bailees' of the owner. Hence they are not paid wages or subject to conditions applicable to an employee, such as annual leave or WorkCover provisions. This is further addressed in section 11.1. 22 National Taxi Council of 13 Submission of Australia and Victorian Taxi Driver's Association communication. VTA. p. 21. NCP Taxi KPMG Final Report.doc - 26 July 1999 40 kpmg Department ofInfrtJstructure NCP Review ofTaxicab Legislation KPMG Consulting 26JuIy 1999 3.3 Other commercial passenger vehicles The licence categories for private hire cars. RHVs and Spys operate to differentiate or prevent competition between taxi-cabs and these vehicles. The primary provision that appears to operate in this manner is section 143 of the Transport Act, which requires applicants to demonstrate that the approval of the licence would be in the interests of the public generally, including the effects on those providing similar services. RHVs are a relatively new licence category (Transport (Amendment) Act, No.2, 1993), however, which does not require application of the public interest test ("as of right" licences). This category was introduced to speed the process of licence application. Restricted hire licences were made non-transferable to ensure that the "costly trading of this type of licence, so inherent with other passenger vehicle licences, will not exist. ..24 There are also other licence conditions that segregate these markets. For example: • hire cars can only be certain 'luxury' vehicles which have specific maximum age requirements; • • • • the vehicles must be pre-booked (no plying (cruising) or touting); vehicles are prevented from operating on certain routes or in certain areas; hiring rates must be agreed prior to the journey; licence conditions ensure vehicles are of a luxury standard (hire cars) or of special purpose (e.g. right-hand 4WD); and special conditions are placed preventing the transport of passengers outside tightly defined circumstances. • It is evident that. this has not eliminated all competition between the various categories of SCPVs. The VTA in fact noted that it was concerned about the increasing competition coming from the hire car industry (given its advantages in terms of price flexibility and non"common carrier" status), particularly the Spy sector, for the discretionary door to door transport market dollar. 25 These vehicles are also subject to the requirements of the Transport (Passenger Vehicles) Regulations 1994, which further require that: • • a driver's certificate must be held; records relating to the operation of the vehicle must be kept; and 24 Hon. Alan Brown. Transport (Amendment) Bill /993, Second Reading Speech. as Submission ofVTA, p. 22. NCP Taxi KPMGFinal Report.doc - 26 July 1999 41 kpmg Deporlment ofInfrastructure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 • vehicle specifications set out in Schedule Two of the Regulations are followed. Licence conditions, and the difference between taxi-cabs and other SCPVs, are highlighted in Table 3.1. Table 3.1 Summary of licence conditions for SCPVs Licence type Hiredon demand Must Car restriclions operate from depot A imilS Hiring rales determined ClUislng market? Aoule reslriclfons? Taxi-eab ./ ./ !xed I by Victorian Taxi Diraetorate by agreement ./ ./ Age rtmits Hire car X JC Speci l vehicle type a (lU XUry saloon) Special vehic:le Special vehlcle X ./ RHV SPV X X JC by agreement by agreement X X ./ ./ x These vehicles are affected by similar entry restrictions to those for taxi-cabs. Applicants must show that the application for the licence is in the "public interest", based on existing demand and supply conditions. Differences to taxi-cab applications include: • • for a RHV licence, a person must be a ''fit and proper" person to hold such a licence; applications for licences (apart from RHV licences) are subject to objections under 5.142(5), including from competitors to the proposed service. It is not clear why there are different requirements for RHVs in terms of a 'fit and proper person' test. For other licences, transfers must be approved by the licensing authority who must be satisfied that the person to whom the licence is to be transferred is a 'suitable person' having regard to character, qualifications and financial stability. The Regulatory Reform Task Force report on the Tourism Industry provided one example of how the application process for a Spy can have adverse competition consequences." It notes that satisfying the requirements of section 143 (particularly establishing the demand for the service) is difficult, and that it is standard industry practice for industry associations to object automatically to applications for new licences. The result is often delays of 12 months or more to receive a licence, involving not only the direct loss of money in 26 Regulatory Reform Task Force, op. cit. NCP Taxi KPMG Final Report.doc - 26 July 1999 42 kpmg Department 01Infrastnu:1un NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 preparation but also in revenue forgone. The RHV category avoids this restriction." However, restrictions remain for other vehicles providing passenger services. Table 3.2 and Table 3.3 illustrate the number of licence applications received for hire cars in the last few years and the number of licences that were refused. In total, it shows that over 64 per cent of applications in the Metropolitan area were refused (with only 12.5 per cent of these appeals successful) and 50 per cent of country applications were refused (with none successful at appeal). This indicates that the public interest or need criterion is operating as a major restriction on competition by preventing the entry of otherwise suitable operators. Table 3.2 Metropolitan Hire Car applications FInnndnI YeJlf' AppU~(1I Applications (Uamccs) Grun tm (Litrnces) Ref~ AppeaJ3 (Llcmc\'S) Applicants Appllelltlons GI"lIDICd oDApj)W 1995-9 [996-97 63, 21 12 I 81 32 6 49 22 14 6 10 Nil (J ! I 28 15 7 20 8 1997-98 1998Tutal 19 21 5 10 Nil 8 1~ 11 96 (64%) 3 10 48 Nil 6 (12.5% 149 53 31 Source: Victorian Taxi Directorate Notes: (1) Applicants can apply for multiple licences (applications) (2) On three of these licences special conditions were placed on the vehicles Table 3.3 Country Hire Car applications FtDanclaJ Year AppUOlllts AppUcalWgl l (Ucrnccs) Grantt.'d (Licences) Rerosed (Ucences) Apprals Granted AppUcanl'l AppUt:aIion:; on Appeal 1996-97 1997-98 1998Tuml I 3 3 2 I 3. 6 3 2 I 2 2 I 2 2 2 7 Nil Nil Nil 3 I 3 2 12 (50% 18 24 12 6 Nil Source: Victorian Taxi Directorate Other evidence also indicates that the requirement for consideration of the effect of the licence on competitors can have adverse effects. The Administrative Appeals Tribunal has 27 Transport (Amendment) Bill 1998. NCP Taxi KPMG Final Report.doc - 26 July 1999 43 kpmg DepartmenJ ofInfrastructun NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 in the past rejected licence applications explicitly for this reason. 2S It is clearly a restriction on competition for licence applications to be rejected in this manner. Considerations of "public amenity" or "potential demand for the service" serve to protect existing operators at the expense of potential competitors, and harm the public who are denied increased choice of service, lower costs and prices. 3.3.1 Drivers Drivers of hire cars are required to hold the Victorian Taxi Driver Certificate under s.156 of the Transport Act. The same controls apply viz. criminal conviction checks, driver licence record check and medical report as for taxi-cab drivers. The Transport Act also provides that the driver's certificate can be revoked or suspended by Victorian Taxi Directorate if the conditions have not been complied with, if false information has been provided, or if the holder of the certificate is not a "fit and proper person.It 3.4 Summary of restrictions The restrictions identified are summarised into the four categories identified above. They form the basis for discussion in the following sections. 28 See, in particular, Camirai v Victorian Taxi Directorate (1997/17817) in relation to the difficulties in application for a hire car licence. NCP Taxi KPMG Final Report.doc - 26 July 1999 44 kpmg Department ofInjTrzstructun NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 Table 3.1 Summary of restrictions on competition Type of res trI ct I00 RI e evant prows OIlS •I \Y b hie DlIU"ket? Markets and passenger services How the legislation or regulation -'-"-' •• restricts competition Public interest licensing provisions for taxi-cabs, hire cars and other SCPVs for cruising pre-booked transport • • • • Licensing provisions prevent entry of otherwise suitable applicants Entry restrictions restrictions Zoning (metropolitan, outer suburban, country areas) in licence conditions Act and Geographic markets for cruising and pre-booked taxi-cab services Prevents taxi-cabs from entering into other zones to pick up work, or to pick up return work Licence conditions and regulations that prevent regular route services (all SCPVs) Different requirements on hire cars and taxi-cabs: Markets for public transponation services Prevents direct competition with trains, trams and buses Prevents taxi-cabs competing for supply of public transport services Imposes distortions on competition between hire cars and taxi-cabs Prevents hire cars competing in 'cruising' market Prevents 'niche' taxi-eab operations that focus on market segments only (e.g, airport) Markets for cruising and pre-booked taxi-cab • • • Inter-modal restrictions • Differential vehicle age and restrictions and other services SCPV between taxi-cabs and hire cars • Plying for hire (hire cars and other SCPVs) prohibited Market for pre-booked and cruising taxi-cabs • • Hired on demand Taxi-cab fares are fixed as part of licence conditions Price restrictions Meters regulation are prescribed by Restricts price competition between taxi-cab depots and between individual cabs Other SCPVs do not have fare regulation. These provisions are contained in the Act, Regulations and in licence conditions Markets for pre-booked and cruising taxi-cabs , hire cars and other SCPVs Market for drivers of taxi-cabs and other SCPVs • • Quality (minimum standard) restrictions There are many restrictions on the quality and standards of service. See Table 9.1 for summary. These regulations can prevent competition on service quality and prevent innovation (new services developing). NCP Taxi KPMG Final Report.doc - 26 July 1999 45 kpmg Depanment ollnfrustructure NCP Review 01 Taxicab Legislation KPMG Consulting 26 July 1999 4 Effect of restrictions on competition on industry performance Introduction In this section of the report we provide some general statistical background on the performance of the taxi-cab industry followed by a more detailed look at the characteristics of performance relevant for this review. 4.1 General comparative statistics were collected by the VTA and included in its submission to this review. Table 4.1 is based on data collected in previous surveys as well as current information. It relates to Greater Melbourne (Metropolitan and Outer-suburban zones). Table 4.1 Industry Performance Item 1978 Taxi-cabs •Hires per taxi-cabper week Hire per year (millions) Total revenue($1998 millions) Averagefare ($1998) Average lrip length(km) Engaged to total kilometres Paid kilometres (millions) Unpaidkilometres (millions) Total kilometres (millions) Revenue per taxi-cabper week ($) Revenue per paid kilometre ($) Revenue per kilometre ($) Average distanceper week per taxi-cab Source: Notes: (1) Does notincludeFrankston and Dandenong Year 1983 2987 156(2) 24.2 ~ 1986 3001 134(2) 20.9 156(·) 7.45(·) 7.6 51% 119 115 1987 2890(1) 1998 3247 133 2983 137 21.2 202 9.54 6.3 48% 133 143 276 1,303 1.52 0.73 1n9 132 19.8 221 11.14 B.2 (r 22.4 284 . '13.72(3) 5.9 55% _12.~ 10 58% 224 166 390 53"10 163 144 307 1,470 --1.560.72 2043 142 116 258 2,135 2(34 ~ 234 999 1,684 1-" 1.2'0 0.73 2310 I) - 1.3'1-0.67 1500 1.29 1661 vrA Submission (2) The sourcesfor these figures reported passengermovementsin tad-cabs. The vrA assumed 1.2 passengers per Iaxi-cab on average (3) The vrA considers the figures quoted in Wilson (1985) are too high. (4) The revenue figures reported in the Folettainquiry are consideredby the VTA to be 100low ($213 million Iotal revenue and average fare $13.10 are considered more occurale) NCP Taxi KPMG Final Report.doc - 26 July 1999 46 kpmg Depar1menJ ofInftostrudure NCP Review a/Taxicab Legislation KPMG Consulting 26 July 1999 The data provided is based on best estimates and it is difficult to know how reliable they are. The absence of a proper knowledge base relating to industry performance is a significant weakness of current regulation. Nonetheless a couple of interesting trends emerge: • • vehicles appear to be working harder, with total kilometres rising quite sharply; vehicles also appear to be working more efficiently, with better utilisation ratios between paid and unpaid kilometres; but, surprisingly this does not appear to be reflected in the number of total hires and subsequently the number of hires per taxi-cab. • We have some doubts about the veracity ot tb~ _ p-asse.ngectrips numbers provided by the VTA given the sustained growth in tIDU ~ab ·vehicle kilometres and passenger kilometres. It ' is interesting to note in this regard that details supplied to the Victorian Taxi Directorate in i 1994 by the VTA for the preparation of a Regulatory Impact Statement suggested that vehicles on average undertook 8400 trips per year (161 trips per week), which would equate to almost 28 million trips in Greater Melbourne. Another estimate from the VTA provided to the Crime Prevention Committee (1993) was that "taxi-cabs transport possibly up to 35 million passengers per annum.,,29 4.1.1 Comparisons across Victoria The VTA also provided statistics (Table 4.1) relating to the revenue of cabs in the Metropolitan, Outer-suburban and Country fleets. On this basis it estimated that the total revenue for the Victorian taxi-cab sector was $317.5 million in 1998. 29 CrimePrevention Committee(1993), Developing a Safer Taxi Industry; Inquiry into Personal Safety on the Public Transport System, Melbourne, p. 18. Note this figure is passenger trips. not hires per taxi-cab, although at 1.2 passengers on averageit is still more than 29 million hires. NCP Taxi KPMG Final Report.doc- 26 July 1999 47 kpmg Department oflnfrostrrutun NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 Table 4.1 Taxi-cab sector statistics - 1998 ZOna MOler Metro Fleet cars Km ~ 26 16 Day Year Trips Fares 1,711 8,580 $ 337 $111,300 14,700,000 $ 190,400,000 $59,400 6,400,000 $ 83,100,000 21100 000 $273500 000 Owner/ driver 1,400 Total metro Outer suburban Total metro Urban Country Industry total 45,n6 $ 208 9900 $ 240 9900 $ 240 4950 $ 105 3110 137 3,247 238 413 3,898 $12.98 10 s $ 8.00 8.00 7.00 8 5 30 30 15 $79200 $79.200 $34700 1400,000 $ 10900000 22,400,000 $ 284,400,000 2400,000 $ 18800 000 2000000 $ 14300000 26,800,000 $ 317,500,000 $12.68 $ 7 $11.83 Source: Victorian Taxi Association Submission Notes : (1) data from operators (2) Composition of the Metropolitan fleet is 55% fleet cars 45% owner/drivers Assumptions: 1. 2. Fare is for an average trip Taxi-cabs worked 48 weeks a year Metro owner driven vehicles work one shift a day Metro owner drivers work six days a week for 26 days a month Metro crewed (fleet) vehicles work 2 shifts a day for 30 days a month 3. 4. 5. 6. All Outer suburban taxi-cabs assumed to be crewed 4.2 Driver and vehicle standards In July 1994, new taxi-cab and passenger vehicle regulations came into effect. These were recognised as a sweeping attempt to raise standards among taxi-cab drivers and vehicles . A summary of these changes is as follows: NCP Taxi KPMG Final Report.doc - 26 July 1999 48 kpmg Dqxutm6nt ofIn~ture NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 - All taxi-cabs to have distinctive Victoria Taxi Yellow livery (when purchasing a new vehicle) All drivers to wear a company uniform - Taxi-cabs must be less than two years old at the time of registration - _ Stricter and more frequent checks of taxi-cabs New 40 hour TAFE accredited entry course emphasising customer service skills - New English language and literacy test introduced _ • All taxi-cabs to have fully functioning air-conditioning _ ''0'' blood alcohol requirement for drivers on duty The Victorian Taxi Directorate and the VTA intermittently assess the views of customers on standards of service quality. A series of reports by consultants Brian Sweeney & Associates and PPK in 1998 indicate in particular that: there are large variations in the quality of service provided by drivers; there have been significant improvements noted in relation to the requirements for yellow cabs, uniforms, clean cars and a smoke-free environment; customers perceive weaknesses in driver knowledge; and there is considerable concern with the long wait times in particular periods (especially weekends) .30 • - Submissions to this review, in general, supported the notion that the reforms have been well accepted by consumers and others in the industry. Submissions addressed this point: 'The industry in Melbourne in its present form has made great progress and has never exhibited a higher level of both vehicle and driver standards, including standard of service delivery to the customer. . .,,31 "We now have a reliable, clean and properly run industry compared to a few years ago.,,32 30 PPK Environmenl & Infrastructure (1998). Travel Demand Survey. January and February 1998. Melbourne, VTA and Victorian Taxi Directorate, Brian Sweeney & Associates (in conjunction with PPK, VTA, Victorian Taxi Directorate), A Draft Qualitative Report on Consumer Attitudes, June 1998. J l Submission of Mr Steven Tintas, p, 1. NCP Taxi KPMG Final Report.doc - 26 July 1999 49 kpmg Deportment ofInfr'rlstrudure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 While these views are positive, they also highlight weaknesses in the industry. First, the fact . that the Government had to take the initiative of forcing through changes to the Regulations to improve performance suggests that effective competition in the industry is far from being realised. Secondly, it highlights the limited knowledge of the industry held by the regulators. There are few, if any, measures of performance that are collected by the Victorian Taxi Directorate on a regular basis. It is therefore difficult to measure the industry's performance over time. Effective fare regulation particularly relies on a solid flow of reliable information." This inadequate database means that it is difficult to assess the impact of regulation. Driver remuneration appears to be very low. The VTA provided a survey of driver earnings from March 1998, based on a sample of data from six large taxi-cab operators. Table 4.1 suggests gross hourly income is well below award-based levels of remuneration for comparable employment and is not much higher than unemployment benefits for single persons. Drivers also do not get paid sick leave or annual leave. There is likely to be variation in driver incomes, due to the skill of certain drivers in picking up fares, and the specific shifts worked." Table 4.4 indicates there is some variation in average hourly rates for day and night shifts and so variation depending on the total number of hours worked. Table 4.1 Comparison of driver incomes Taxl-eab dri ver Gross hourly rate $6.67-7.52 Chub b (S~uri t)·) GuunJ Duna l bus dri ver $14.13 UneD1jdoymcnt benefit (si ngle) $5.21 Award wage (full·time) $11.31 $10.50 Source: Victorian Taxi Association, 1998 Driver Survey, and Victorian Taxi Driver's Association Table 4.2 Estimates of driver remuneration 7 day 60 hu~ Sd.ay 5 day 50 hours 8.83 9.02 Weeken d 24 hours Average day ($) (hourly rate) Average night ($) (hourly rate) 7.02 8.02 6Obonrs 7.36 7 .51 6.08 9.38 Source: Victorian Taxi Association, 1998 Driver survey 32 Submission 33 See, ofN.& M. Harrington, p. 1. in particular, Beesley, M.E and Glaister, S. (1983), "Information for Regulating: The Case of Taxis", Economic Journal, 93, 594-615. 34 We were advised that the hourly rate for taxi-cab drivers in Adelaide was slightly higher, at approximately $8.20, and that these taxi-cabs did not earn as much astaxi-cabs in Melbourne. Hence there may be underreporting in these figures. NCP Taxi KPMG Final Report .doc - 26 July 1999 50 kpmg Department of/nftuslruetuTe NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 While it is not clear whether all driver remuneration would be covered by the survey, ego tips, it does seem to be generally acknowledged that drivers are low paid. Low levels of remuneration might be expected to affect the supply of drivers to the industry. In the past this has been a cause for concern, but it was only briefly alluded to during the current review. The VTA expressed some concern about the impact of the modest training requirement for certified drivers and the impact this has had on the number of new applicants. We see the issue here not so much in terms of the level of required training, since this is minimal, but rather in terms of the modest incomes of drivers. It means that a small cost impost can have a significant impact on driver availability. Although licence owners and holders appear to be able to engage sufficient numbers of drivers at the present time, the quality of driver in the industry is not as high as it could be if there was a larger pool of potential drivers to choose from. Many new drivers are recent migrants to Melbourne, or are people working multiple jobs. Taxi-cab driving for this latter group is a way to supplement existing income. Low driver remuneration contributes then to a lack of professionalism in the industry affecting the quality of service available to customers. Low remuneration for drivers may not simply be the outcome of a fully competitive labour market. There is concern that high concentration on the demand side of this market (depots, fleet operators) and possible co-ordination between buyers of driver services may restrict competition and allow driver remuneration to be set close to reservation wage levels approximated by the level of single person unemployment benefits. Although there are a large number of operators in the industry, at the depot level there is high concentration. Depots play an important role in acquiring labour services from drivers for individual licence owners or holders. Depots are able to closely co-ordinate their activities through the VTA. The Association has a standard agreement that it recommends be used for governing driver-leasing arrangements. This agreement provides for a 50:50 sharing of the metered fare between the licence holder and the driver. This impacts on the level of driver remuneration and also on the marginal effort of drivers - whose benefit from additional work is generally only half of the meter - and thus contributes to problems of driver availability." 4.3 Licence values Licences for all SCPVs except RHV s are transferable and have therefore taken on the nature of an asset. That is, the "right" to operate a taxi-cab can be bought, and has acquired considerable resale value. Licence values are a controversial issue, in the taxi-cab industry. Indeed, the high values that licences (plates) attract has caused consternation (particularly to 3~ This compares with the situation in Sydney, where shifts are ' purchased' from vehicle owners, and drivers receive the full marginal benefit of fares. NCP Taxi KPMG Final Report.doc - 26 July 1999 51 kpmg Departm6nt ofI"fmslruduTe NCP Review a/Taxicab Legislation KPMG Consulting 26 July 1999 J economists) around the world. The VTA maintain that licence values are not central to the debate about regulation. However, we consider that licence values are central to the debate about the problems with regulation. It is not that licence values are bad per se, but that they indicate that excess profits have been incorporated in taxi-cab fares at the expense of consumers of taxi-cab services. Taxi-cab licence holders will have benefited to different degrees from the current system. Those who acquired licences when values were low will be the largest beneficiaries. Many of these will have left the industry over time, taking their capital gains with them. Licence values are symptomatic of a broader problem with regulation in the indusrry." The obvious point to make is that licences only have value because they are scarce. In the Metropolitan area there has been virtually no change in Metropolitan Taxi licence numbers in the past decade since the response to the Foletta Report, as shown in Table 4.1. In 1991 50 licences for wheelchair accessible taxi-cabs were issued with the aim of ensuring that disabled passengers were better catered for than had previously been the case, while the issuing of 100 high occupancy vehicles (HOY) was also recently announced." The HOY licences are designed to provide a solution to the problem of slow taxi-cab response times in peak periods. However, we do not consider this is necessarily the best way to deal with the problem, as discussed in Box 4.1. Table 4.1 also provides some comparative demand data for the Metropolitan region. 36 It is obvious that profits and therefore licence values could be made to fall by increasing costs - by restricting taxi-cabs to only work on weekdays, for example - but this does not make consumers better off. Prices must fall for this to occur. 37 Press release by the Victorian Minister for Roads and Ports , Mr GeoffCraige, "Extra 100 Licences to Cut Waiting Times, on 17/12/1998. NCP Taxi KPMG Fmal Report.doc - 26 July 1999 52 kpmg Department oflnjrustructure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 Table 4.1 Licence and demand indicators for Metropolitan region 1951 1961 1971 1981 1986 1987 1988 1989 1990 1991 1992 1993 1639 2188 2813 810 910 920 950 990 2985 2987 3101 121 310 3101 3101 59,227 $43,688 38,173 39,047 35,970 41,672 $46,949 $46,867 40,695 36,293 6,368 S87.218 113,825 970 980 1000 1000 1020 1020 1030 1030 1040 NlA 11,808 9,128 11,959 11.323 11,372 10.506 11,427 130.565 $14 ,290 $123,396 I 3101 3 10 1 3101 3101 $130,149 $142.132 $129,927 $158 ,511 $189 ,2 15 :5214.234 $259 . 100 $46,828 $46,181 35,435 37,551 47,270 1995 1996 1997 3101 3101 3101 $46.406 $48,710 14,267 15,238 18,055 48,430 48,167 N1A 22.2% 5.1% $50,094 Total Growth 1951·1986 82.2% 3.8% Total Growth 1987·1997 14.7% 26.1% 184% 197% Source: Victorian Year Book, 1997, ABS Cat. No. 5220-21 Vic, Victorian Taxi Directorate, Tourism Victoria Notes: (1) Data is adjusted to real, using CPI (Melbourne) 1997 average prices (2) The years between 1987-93 are unknown and the 1987 figure is assumed the same at 1993. The data can only be regarded as providing partial indicators of taxi-cab demand. We agree with the VTA that licences per head are not a good measure of demand, although this is a commonly used indicator. There will be many factors that will affect the intensity of demand given population size. Growth in licences, however, lags behind all important indicators of demand for taxi-cabs, including household disposable incomes." As the following discussion shows, however, taxi-cab licence values are not determined by demand alone. 38 Although if taxi-cabs are an inferior good then we could expect this result. NCP Taxi KPMG Final Report.doc - 26 July 1999 53 kpmg Depm1ment oflnjtastrudun NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 Box 4.1 Economic impact of the issuing of 100 HOV licences The Minister for Roads and Ports recently announced the issuing of 100 HOV licences. This licence release was designed to reduce waiting times for taxi-cabs during peak: periods and major events. However, the licence conditions are restrictive, they protect existing licences from competition and go beyond merely ensuring adequate peak period supply. For example: • • • • licences cannot be transferred or assigned for 10 years; the owner must be an individual (not a taxi-cab company); drivers must comply with depot directions; special conditions apply to compulsory hours of operation (designated peak periods), including a restriction to limit pick-up to within 7km of Melbourne GPO and a restriction on trips to the airport (with direction from, or consent of, depot). In addition, the types of applicants and conditions of the licence have been restricted. An applicant must have held a driver's certificate for five years and have never owned a taxi-cab licence. While we support the objective of this move to ensure better availability of high occupancy vehicles at .peak. times, we have some significant concerns with the way the objective is being achieved: • A ~a.ior concern with the issuing of these licences is the regulatory 'spiral' that it seems to be encouraging. Ultimately, the more conditions that are placed on licences the more enforcement is required and the higher are the costs from distorting market incentives. The issuing of additional licences just to cover peak period demand is an inefficient and unnecessarily complex means to overcome problems of availability. A better "solution" to having more taxi-cabs on the road at peaktimes is to increase the available supply of taxi-cabs generally and encourage operators on to the road by allowing higher fares at peak times. This would require less regulation, be effectively targeted and ensure that those purchasing taxi-cab services more accurately pay the costs of their . 39 service. By preventing transfer or assignment for 10 years, these conditions minimise the impact of the new licences on the value of existing licences. It affects the supply of taxi-cab services (and thus returns to taxi-cab operators), but it does not affect the supply of licences on the transfer market in the medium term. Hence we would expect a limited effect on the price paid for licences. Limiting the sale of licences to drivers with a certain amount of experience has been seen as a means of 'rewarding' drivers for long service in the industry. Not selling at market prices imposes additional efficiency costs because the licences do not go to those who most highly value them. A more direct way to reward drivers would be to ensure they received appropriate remuneration and employment conditions. • • 39 This is the 'peak user' principle - every time a taxi-cab is taken it increases waiting times and imposes costs on other potential consumers. An efficient solution is to ensure that consumers bear the costs of higher waiting times as well as the direct costs of the trip. NCP Taxi KPMG Final Report.doc - 26 July 1999 54 kpmg Department oflnfrus~ NCP Revil!WofTaxicab Legislation KPMG Consulting 26 July 1999 • Introducing "degraded" licences (including all types of 'peak period' licences) is likely to create significant pressure on government to 'upgrade' the licences to full Metro taxi-eab plates during subsequent periods. 40 Operators claim that they cannot make enough money to survive on a restricted basis (which may be true), so they invariably clamour for unrestricted licences which would allow them to work harder (as well, of course, as giving them large windfall gains). Figure 4.1 emphasises that nominal licence values have increased substantially over the last 20 years. Real values (nominal values adjusted by the Consumer Price Index) of licences have also risen sharply, particularly in the periods 1983-89 and 1993-98. Figure 4.1 Real and nominal licence valoes, Metropolitan taxi-cabs, 1989/90 prices Changes in real licence wlues (1997 prices) $300,000 . . . - - - - - - - - - - - - - - - - - - - - - - - - - , $250,000 $200,000 $150,000 $100,000 Asslgnmmt introduced ...•... Ucence value· nominal • Ucence value - real $50,000 .II .. ¥ ~1 • Mr, A ~~ .. $O+'_~f--'--I_4_"""_+_..a..+_'-+-l-+-'-...j_L.+'_~~...y."""_+_..L....I_&..+I__f_'_+_'_+_'__I____'_l-'-l . ..... FoIetta recornmndatlons ,,~~ -ccf ,,~OJ ,,OJ'b'' -c J~ -cJ'b~ O O "OJ~ "OJ'bOj "OJOJ" .... jOjO:J O "OJOj~ "Oj~ Source: Victorian Taxi Directorate and Australian Bureau of Statistics, Consumer Price Index, 6401.0 These figures are based on a reasonable turnover (transfers) of licences - in 1997/98 there were 240 transfers, and in the financial year to date, there have been 178 transfers." This effectively means that there is little chance of the licence values being artificially inflated as a result of a "thin" market or of speculative trading of licences. We see no reason why the market for taxi-cab licence transfers would not be reasonably efficient overall although it is possible that some buyers of licences are not fully informed as to potential profitability. 40 Submissions were received to this review requesting an upgrading of M50 licences to full Metro taxi-cab licences. 41 VictorianTaxi Directorate communication. NCP Taxi KPMG Fmal Report.doc - 26 July 1999 55 kpmg DqHJT1menJ ofInfrastructure NCP Review of Taxicab Legislation KPMGConsulting 26 July 1999 Thus, if returns to licences are not commensurate with those available to investors elsewhere (e.g. putting the money in the bank), then licences will (and are) being sold by operators. It is more difficult to estimate a current average value of country licences. Often trading is quite thin and the last sale may not be representative of a normal price. However, examples of recent sales (1998) in country areas are shown in Table 4.2 . Our calculations suggest a weighted average value for country licences of approximately $185,000. One COUDtry depot indicated that it attempted to restrain transfer values by not approving membership transfers if the licence transfer values were considered excessive. Table 4.2 Taxi Licence values in selected country areas, 1998 Country area Dandenong Bendigo Geelong Robinvale Yarra Valley Wangaratta Echuca Anglesea Peninsula Ballarat Yarrawonga Source: Victorian Taxi Directorate Lleenee values $260,OOO~265 ,OOO Num ber ortaxi-cahs 70 42 122 2 $210,000 $160-168,000 $73,000 $100,000 $155 ,000 $160,000 $160,000 $180,000 $200-230,000 $60,000 9 10 I 54 3 Licence values are an issue also for hire cars, which are subject to restrictive licensing. Evidence presented to the Administrative Appeals Tribunal recently suggests that Metropolitan hire-car licences are being transferred for between $80,000 and $90,000, which has increased from only $20,000 in 1995. 42 Licence values arise because of restrictions on licence availability imposed by Government. If such a restriction was desirable, a point discussed later in the report, it would be preferable from the community's perspective for the Government to capture the increasing value of licences, not private operators. The Government could do this by charging annual licence fees reflecting market value and not permitting licences to be transferable. 42 Administrative Appeals Tribunal (Victoria) , Caminiti v Victorian Taxi Directorate (1997/17817). NCP Taxi KPMG Final Report.doc - 26 July 1999 56 kpmg Department ofInfrastructure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 4.4 Assignments The relationship between drivers, licence owners, assignors/assignees, and fleet operators can be complicated. In simple terms, a licence attaches to a vehicle, as well as to the holder, and a driver's certificate regulates drivers. However, the actual operation is complicated by: • • • provisions that allow 'assignment' of licences by assignors to assignees; the 'leasing' of licences by assignees or licence owners to drivers; and the operation of a standard lease agreement between the licence owner or assignee and the driver. An assignment is effectively a process by which control of operation of a taxi-cab licence is ceded to another party, who may pay a regular monthly fee (currently approximately $1,800$2,000 in Metropolitan areas) for that right. Assignments are the cause of much debate in the taxi-cab industry. Assignments were introduced in 1981, although they were not widely available until after the recommendations of the Foletta report were enacted in 1987. In part, the increasing value of the licence can be attributed to its transferability through both sale and assignment. Many submissions addressed the role of assignees and assignment: "It is important that the Government understands that the taxi-cab industry at present is divided into two opposing camps, that of the taxi-cab operator assignee and that of the licence holder assignor...Taxi licence values will continue to soar if assignments are allowed to continue, simply because the licence owner is not exposed to the true operating costs of the industry. ,,43 "My belief is that the major cause in the increase of taxi-cab licence prices to the levels we are experiencing now is driven by financial investors (who assign licences) not by the earning capacity of operating a taxi-cab.'''''' Many submissions also favoured the re-regulation of assignments; particularly, that the requirement to have driven a taxi-cab for the previous six months be reinstated.f In our view, however, assignments are likely to have increased productivity (in terms of lowering non-capital costs of operation) and efficiency within the industry. The simple fact is that an assignee values the licence more than the holder of the licence does - because an assignee thinks he or she can make money above the costs of assignment. If this is not true, and the demand for assignments falls, then assignment prices will start to fall. While outside investors are not likely to have the knowledge that operators of taxi-cabs have, it is evident that they would leave the industry if returns from the taxi-cab licence were not sufficient to keep them there. We discuss the effect of assignment further in section 4.5.1 below. 43 Submission of MeSteven Tintas, p. 2. 44 Submission 4S See of Me Tom Groves, p. 6. submissions of Me Sleven Tintas, Me Tom Groves, Taxi Drivers Association of Victoria. NCP Taxi KPMG Final Report.doc - 26 July 1999 57 kpmg Department ofIn.frrsstrueture NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 4.5 Profits Details of depot and industry profitability were requested from the VTA but not provided to us. Taxi-cab revenue comes from fares which, as noted above, are regulated by the Victorian Taxi Directorate. The Victorian Taxi Directorate has changed the way in which it sets taxicab fares . We understand that prior to 1997 the Victorian Taxi Directorate negotiated with the VTA over taxi-cab fares (which used a cost model to estimate the effect of changing input prices on taxi-cab owners). From 1997 the Victorian Taxi Directorate indicated it would adjust fares annually in accordance with the Melbourne transport costs component of the CPI, taking effect from the first Sunday in July. We understand, however, that the Victorian Taxi Directorate did not adjust fares in 1998 because there was a small fall in the CPI. The current fare structure is as follows: Flagfa1l: Distance: Time: $2.60 when meter is started $0.96 per kilometre $0.33 per minute if speed below 21 kph Extras Phone booking: Late night surcharge: $1.00 $1.00 ($1.50 country) One might expect, given the large increases in the value of plates noted earlier, that fares would have risen rapidly over the past few years. However, this is not the case, as shown by Table 4.1. NCP Taxi KPMGFinal Report.doc- 26 July 1999 58 kpmg Department ofIn.{rrJstructure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 Table 4.1 Changes in prices for Victorian taxi-eabs 1981-1998 Tariff at: •I .. .. • :. • I· - Flagfall $1.00 $1 .00 $1 .00 $1.10 $1.70 $1 .90 $2.00 $2.20 $2.50 $2.60 $2.60 $2.60 $2.60 $2.60 Distance (cJkm) Time detention rate.(elmln) 20 Booking fee - 0.30 0.30 0.30 0.30 0.30 0.60 0;60 0.60 0.60 0.60 21.7 1 24.67 25.7 25.6 56 56.5 57 .5 59 .5 61.7 61.7 68 89 96 25 .6 27.8 29 .8 30.8 31 .91 31 .9 32 4112/1983 27/ 1011985 21/12/1986 6/03/1988 27/ 11/ 1988 4/06/1989 1/0611990 2211211990 29/ 11/1991 28/02/1 993 10/0911994 S 0.60 0.60 1.00 S $ $ 32 6/07/1997 Source: Victorian Taxi Directorate 33/ 1.00 Notes: (1) Table uses "Tariff 1" figures - the basic daytime fare prior to the introduction of a single basic fare (with a night surcharge), and is without booking charges. A series of real taxi-cab fares was constructed using (industry-supplied) averages of an 9.1 Ian trip with 3 minutes of waiting time. Only 'tariff one' figures are used (this was the basic fare prior to the elimination of different tariffs in 1994). In real terms, taxi-cab fares have remained relatively constant over the last 20 years. Figure 4.1 suggests that while real prices (nominal prices adjusted for inflation with base year 1998=1(0) fell until the early 19908, a rise in mid-1994 was enough to push real fares slightly higher than they were in 1981. We understand that, in part, this rise was a 'trade off' with taxi-cab owners to ensure reforms (involving higher costs) of the taxi-cab industry were accepted. NCP Taxi KPMG Final Report.doc - 26 July 1999 59 kpmg Department ofInfrastructure NCP Review ofTaxicab Legislation KPMGConsulting 26 July 1999 Figure 4.1 Real taxi-eab fares (l998 dollars) and licence values IH .OO '10.00 J se.oo J IIlm 14m 10.011 1~1~ I. 1~1~1_1_ 1~1_I_lal~ IEI~I~I~I~I_IR y- Source: Victorian Taxi Directorate,Australian Bureauof Statistics Consumer Price Index, 6401.0, KPMG We also examined changes in industry input prices to determine whether this may have affected profitability and hence licence values. The main running costs for taxi-cab drivers include: • • • • the price of fuel (LPG); insurance and repair costs; car prices; and vehicle servicing. The ABS collects information on the costs of transportation for the calculation of the Consumer Price Index. This includes sub-indices on car prices, petrol prices (not LPG) and the price of insurance, servicing and repair of vehicles. Comparing the Melbourne Transportation Index to an index of taxi-cab fares in recent years (Figure 4.2) illustrates that the costs have not increased to any extent since 1995, but fares did rise again in 1997. While it can be seen that in the years 1980-89 fares rose slower than costs, in recent years the trend has clearly favoured higher growth in fares. NCP Taxi KPMGFinal Report.doc- 26 July 1999 60 kpmg Department ofInfrastructure NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 Figure 4.2 Taxi fares and private motoring costs TuJ 1anla VII PrtvBI8 Motoring costa 2llO 240 ... - 22ll 200 I I :. ! • 1lID 1eo 140 1211 100 _. ~ d ~ J>C~ fto:JG:"-"':i ./ r.ll'H:H~..s1· «->: i • • t'tt"l-~;'t , ~ "I.~ j 'I r.u':) :oecc.;J !>xdQ , while the per annum transfer to licence owners is estimated to be 2 $66,107,376 (Qo times dP). The total of these two figures is the loss of consumer surplus per year. Total consumer surplus can be calculated from calculating the slope of the demand curve as given by: -=--aQ e x Q Dp and, assuming demand is linear in Q, we can estimate: !::J> 1 NCP Taxi KPMG Final Report.doc- 31 July 2000 165 kpmg Deportment ofInfrastructure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 where (Xl is the intercept and ~l is the slope of the demand curve given above. Sensitivity of results Table C.2 shows the results of the partial equilibrium model under two different 'cases' . A 'high' and 'low' set of assumptions was chosen on the basis of minor variations (usually around 5-10 per cent) on the base case. The analysis is most sensitive to changes in net licence values and rates of return, while the elasticity of demand significantly affects deadweight losses. Table Co2 • Sensitivity to assumptions 8aso case HIgh Low NDtTtcenoo valuo . .'1.- -. '1 , $238,500 9% $250,000 $200,600 B% 10% -1 25,000,000 -0.8 22,400,000 $12.98 -0.6 20,000,000 $12.98 $9.54 31,622,320 -$11,381,283 -$85,931,229 -$97,312,512 $12.98 $10.78 22;034,377 -$2,237,651 -$43,996.789 -$46.234.441 $10.02 26,475,671 -$6,014,105 -$66,107.376 -$72,121,480 This table suggests that the results are quite sensitive to changes in the main variables, although even in the 'low' case, the potential efficiency losses are substantial. The transfer of income is also significant in this case. As to the likelihood of the low or high case, we have no reason for preferring either specification over the base case. NCP Taxi KPMG Fmal Report.doc - 31 July 2000 166 kpmg Deparlment ofInfrustrudun NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 Appendix D - References Arblaster, M, (1979), An economic analysis of regulation of the Taxi Industry incorporating an empirical study ofthe Melbourne Taxi-cab Market, M.Ec Thesis, Monash University Arnott, R. (1996), "Taxi travel should be subsidized" Journal of Urban Economics 40: 316333. Avants, S., Gilbert, G. and Lupro, B. (1995), Peer Review of Seattle Taxi-cab Regulation, report prepared for the City of Seattle, Seattle. Beesley, M. E. (1973), ''Regulation of taxi-cabs", Economic Journal 83: 150-169 . Beesley, M. E. (1979), "Competition and supply in London taxi-cabs" Journal of Transport Economics and Policy 13: 102-131. Beesley, M. E. and S. Glaister (1983). ''Infonnation for regulating: the case of taxi-cabs." Economic Journal 93: 594-615. Boroski & Mildner (1998), An economic analysis of taxi-cab regulation in Portland, Oregon available at www.cascadepolicy.org/transitltaxi-cabJeg.html Brokenshire. L H. (1994), ''The New Zealand taxi-cab industry - four and a half years after deregulation" Taxi 40: 23-26. Cairns, R. D. and C. Liston-Heyes (1996), "Competition and regulation in the taxi-cab industry" Journal ofPublic Economics 59 (1): 1-15. Coffman, R. B. (1977), "The economic reasons for price and entry regulation of taxi-cabs A comment" Journal of Transport Economics and Policy 11 (3): 288-297. Dempsey, P. S. (1996), ''Taxi industry regulation, deregulation and reregulation: the paradox of market failure" Transportation Law Journal 24 (1): 73-120. Diamond, P, "A model of price adjustment", Journal ofEconomic Theory, 3 (1996) Folerta, B. (1986), Report of the Taxi Inquiry - Melbourne and Metropolitan Area. Melbourne, Ministry of Transport. Gallick, E. C. and D. E. Sisk (1987), "A reconsideration of taxi-cab regulation" Journal of Law, Economics and Organization 3 (1): 117-128. Garling, T., T. Laitila, A, Marell and K. Westin (1995), "A note on the short-term effects of deregulation of the Swedish taxi-cab-taxi-cab industry" Journal ofTransport Economics and Policy 29 (2): 209-214. NCP Taxi KPMG Final Report.doc - 31 July 2000 167 kpmg Department ofInfrastructure NCP Review ofTaxicab Legislation KPMG Consulting 26 July 1999 Gaunt, C. and Black, T. (1994), "The unanticipated effects of the Industry Commission's recommendation on the regulation of the taxi-cab industry" Economic Analysis and Policy 24 (2): 151-170. Gaunt, C. and Black, T. (1996), ''The economic cost of taxi-cab regulation: the case of Brisbane" Economic Analysis and Policy 26 (1): 45-58. Gaunt, C. (1996), "Taxi-cab deregulation in New Zealand" Journal of Transport Economics and Policy 30 (1): 103-106. Glazer, A and R. Hassin (1983), ''The economics of cheating on the taxi-cab market" Transport Research 17A (1): 23-31. Hackner, 1. and S. Nyberg (1995), "Deregulating taxi-cab services: a word of caution" Journal ofTransport Economics and Policy 29 (2): 195-208. Industry Commission (1994), Urban Transport. Canberra, Industry Commission. Kahn, A, The Economics ofRegulation: Principles and Institutions, 1988 Kang, C.-H. (1998), Taxicab Deregulation: International Comparison, MSc (Eng) dissertation. Institute for Transport Studies. Leeds, University of Leeds. Land Transport Safety Authority (NZ), Transport Services Operator Licensing Review Discussion Document, December 1998 Marell, A and Westin, K. (1995), "Deregulation of the Swedish taxi-cab-taxi-cab industry: vehicle utilization", Paper presented at the 1" World Conference on Transport Research, 1621 July 1995, Sydney, World Conference on Transport Research Society. Morrison, P. S. (1997), "Restructuring effects of deregulation - the case of the New Zealand taxi-cab industry." Environment & Planning A 29 (5): 913-928. PPK Environment & Infrastructure (1998), Travel Demand Survey : January and February 1998, Melbourne, VTA and Victorian Taxi Directorate. Price Waterhouse (1993), Analysis of Taxi-cab Deregulation and Be-Regulation. Kensington, MD, International Taxi-cab and Livery Association. Schuurmans-Stekhoven, J. B. (1996), ''Who will hail taxi-cabs in a deregulated market? A comment on Gaunt and Black" Economic Analysis and Policy 26 (2): 177-183. Shreiber, C. (1975), ''The economic reasons for price and entry regulation of taxi-cabs" Journal ofTransport Economics and Policy 9 (4): 268-279 . NCP Taxi KPMG Final Report.doc - 31 July 2000 168 kpmg Department ofl"ftvstrudure NCP Review of Taxicab Legislation KPMG Consulting 26 July 1999 Shreiber, C. (1977), "A rejoinder" Journal of Transport Economics and Policy 11 (4): 298304. Shreiber, C. (1981), 'The economic reasons for price and entry regulation of taxi-cabs. A rejoinder" Journal ofTransport Economics and Policy 11 (1): 81-83. Swan, P. L. (1979), On Buying a Job . The Regulation of Taxi Cabs in Canberra, Sydney, The Centre for Independent Studies. Teal, R. F. and M. Berglund (1987). "The impacts of taxi-cab deregulation in the United States" Journal ofTransport Economics andPolicy 21 (1): 37-56. Telser, L. (1978), Economic Theory and the Core, Chicago, University of Chicago Press. Toner, J. P. (1996), "English experience of deregulation of the taxi-cab industry" Transport Reviews 16 (1): 79-94. Trade Practices Commission (1993), Submission to the Industry Commission Urban Transport Inquiry, Canberra. Tullock, G., "The Transitional Gains Trap", Bell Journal of Economics and Management Science, Vol. 6 (1975), pp. 671-678. Victorian Taxi Directorate (1994), Regulatory Impact Statement - Transport (Taxi-cabs) Regulations. Williams, D.l. Regulation of Taxi-cabs: The Victorian Case, Masters Thesis, Latrobe University, December 1978 Williams, D. J. (1980). "The economic reasons for price and entry regulation of taxi-cabs - a comment" Journal ofTransport Economics and Policy, 14105-112. NCP Taxi KPMG Final Report.doc - 31 July 2000 169