Taxi licensing needs drastic overhaul

The taxi industry is competitive, safe and reliable.  It provides a solid living for the state's 10,000 active drivers.

Taxi trips are also expensive.  This is because in Victoria, as in many other jurisdictions throughout the world, taxi numbers are limited through licensing.

Like any other measure designed to keep down supply, the upshot is an increase in price.

Taxi plates are actively traded.  Currently they sell for $440,000 each.

This means that the cost of a fare is inflated by the interest needed to service that value.  With interest at 10 per cent, each taxi plate has to earn $44,000 a year to pay the bank or provide an adequate return for its owner.

If more taxi licences were issued, their capital value would fall.

In fact, in New York, which also restrains taxi numbers, the city government once offered a free additional taxi plate for each current plate.  In no time flat, the industry rejected this, recognising that it would eradicate the value of taxi plates resulting from regulation.

The costs caused by regulation creating an artificial scarcity are paid by the consumer.

The average taxi takes about $140,000 a year in revenue.  Hence a $44,000 annual interest, or rental value, of the plate would be 30 per cent of the fare.  That's $5.40 out of the average $18 fare.

The current rental value of licences is actually more like $25,000, which means the market is speculating on even greater shortages and higher prices in the future.  Buyers of plates have seldom got this wrong in the past.

The rental value component of taxi fares goes to the owners of the plates, just like rents on land.  But unlike land, this property is artificially created by government regulation and serves no useful purpose.

Clearly, the system should go.

But the problem, as with other unwisely introduced regulation, is how to wind it back.

Confronted by the problem of regulation-induced taxi fare inflation, the New Zealand Government some years ago actually declared open slather and issued new plates on demand.

Many would consider such action to be improper since those who bought an asset for $400,000-plus would see it made worthless overnight.

But a start has to be made.

Over recent years the Government has been creating and leasing out new green-roofed taxi licences with restricted use times.  Leasing out licences rather than giving them away keeps the revenue within the community as a whole.

But government ownership also brings disadvantages.  It means the government itself and the plate holders have a common interest in high rental prices.  The government, as the only creator of the licences, is in a position to restrain supply and boost its own revenues.

Prices of plates have been increasing -- a sign that the Government has been under-issuing new plates.  As usual, the loser from this is the consumer being soaked for regulatory-induced higher prices.

Creation of more licences has to be the answer.

But will a government hooked on milking the public for additional revenues and wary of the aggressive taxi-plate holder's association pursue this wider public service goal?

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