Taxi reform may put passengers in the driver's seat

In the very near future, the Baillieu government in Victoria will have the opportunity to deliver a reform of national significance.

It will soon receive the final report from the taxi industry inquiry it established last year and, when it does, it will have a classic choice to make between good public policy and sectional interests.

Taxis have become a running sore in most Australian cities — double parked on CBD ranks for most of the day, but never to be found on Friday or Saturday nights.  Customer satisfaction surveys regularly put taxis well below trains, trams and buses.

For decades, state governments around Australia have not allowed taxi numbers to grow even in line with population growth.  For instance, in Brisbane, taxis per head halved in the four decades to 2000, while the West Australian government failed to issue any new licences in rapidly growing Perth in a 14-year period to 2003.  It is little wonder that cabs became hard to find at busy times.

To its credit, soon after coming to office, the Baillieu government set up an inquiry into the state's taxi industry and ensured it would have a high public profile by appointing Allan Fels to run it.

The key part of Fels's draft report, released in May, addressed what has always been the major problem with taxi industries around the world — restrictive licensing.

The vast majority lease the plates to operators for about $30,000 a year, a cost that has to be recouped from consumers before they begin paying for the real costs of vehicles and drivers.

While some countries have achieved impressive results from complete deregulation of their taxi industries, Fels plumped for a compromise solution.

Instead of recommending that the state government release an unlimited number of new licences for a nominal fee, he proposed that prospective entrants pay $20,000 annually.

In a classic case of a contest between a specific minority vested interest and a diffuse majority general interest, since Fels released his draft report the debate has been dominated by a taxi industry scare campaign.  Consumer voices have been almost non-existent.  The industry has two basic arguments against the licence recommendations.

The first, much more emotive claim is that by reducing the value of licences, Fels is seeking to unethically deprive incumbents of a property right.  One agitated newspaper correspondent captured this sentiment:

''Who does Allan Fels think he is, telling me how much I can sell or lease my taxi licence for?  It would be the same as someone who bought house for $100,000 then years later the price has gone to $500,000, and along comes Fels and says, no, you have to sell the house for $250,000.''

The holders of the taxi licences seemingly fail to recognise the fact that their ''asset'' is a purely artificial one.  Those investing in a taxi licence have essentially been taking a punt that no state government would have the courage to act in the interests of consumers.

In several countries where the taxi industry has been deregulated, courts have found that there are no grounds for any sort of compensation when the so-called ''property right'' was established solely by government regulation in the first place.

The second argument the industry is attempting to make is that consumers will suffer if more licences are made available.  In the words of the Victorian Taxi Association submission, additional taxis will only ''flood a market that is already full''.  It does not seem to occur to taxi industry incumbents that there may be many potential new customers if they provide a better service.  Further, if one extended its argument to other industries, one could equally argue that in much of Melbourne the cafe market is ''already full'' and demand restrictions on new entrants to the market.

While overseas cities from Dublin to Washington DC, which have moved towards taxi deregulation, might not enjoy a taxi nirvana, they have certainly delivered significantly better outcomes for customers than their regulated cousins.

Too often in the past our state governments have responded to complaints about the taxi industry with ad-hoc reforms to address particular issues.  Hence, there have been edicts to paint cabs a particular colour, mandate uniforms and impose more rigorous driver testing.  Such measures tend to work for a while but, once the focus is removed, the industry slips back into old habits.  Only structural reform can provide a lasting solution.

There seems little doubt that Fels will stick to his guns and the final report he will soon deliver will ignore the special pleading of industry and continue to put consumers first.  The real test will come when the Baillieu government makes its deliberations.

If Victoria endorses Fels's vision, the O'Farrell and Newman governments, with their much larger majorities, will hopefully follow suit and we could see nationwide reform.

If the Baillieu government doesn't endorse the Fels reforms, there will be an equally powerful message that change that attacks sectional interests is too hard.  It will leave tough reform waiting on the rank like a frustrated potential taxi customer.