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TAXI INDUSTRY INQUIRY Final Report

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TAXI INDUSTRY INQUIRY Final Report Customers First: Safety, Service, Choice TAXI INDUSTRY INQUIRY Final Report September 2012 ISBN 0-7311-8793-8 © Taxi Services Commission 2012 This publication is copyright. No part may be reproduced by any process except in accordance with the Provisions of the Copyright Act 1968. Authorised by the Taxi Industry Inquiry, 121 Exhibition Street, Melbourne If you would like to receive this publication in an accessible format please telephone the Taxi Industry Inquiry on 1800 829 444. 1 Foreword It is now nearly 18 months since the Victorian Government announced its intention to establish an inquiry into the Victorian taxi and hire car industry and 16 months since the Taxi Industry Inquiry commenced its investigations in May 2011. Over this time, the inquiry has received more than 1,500 written submissions, met with hundreds of people throughout Victoria and heard from taxi users, industry participants and community groups at public hearings and forums across the State. We have commissioned specialist consumer and economic research, issued eight publications on specific taxi and hire car matters, and produced an exhaustive Draft Report Customers First: Service, Safety, Choice. This Final Report summarises the further work carried out by the inquiry since the release of our Draft Report in May 2012. This report does not repeat the comprehensive and detailed analysis contained in the Draft Report; rather, it sets out industry and community responses to the inquiry’s draft proposals, discusses the inquiry’s re-consideration of critical issues and explains the revisions and additions made by the inquiry to its draft recommendations. This Final Report should be read in conjunction with the Draft Report. While the inquiry has made some significant modifications to our draft recommendations, we remain firm in our core policy approaches and in our conclusion that the Victorian taxi industry must move away from its current high level of protection and restrictive government regulation to one that embraces competition and self-regulation. This move is essential not only to improving the standard and quality of taxi services for consumers, but also to securing the long term future of the industry. The inquiry’s recommendations aim to relax entry restrictions to the taxi and hire car markets over time, with new licences made available at any time to approved applicants for a fixed annual price. This price will vary according to the geographic area in which the taxi or hire car is operating. The owners of these new licences will not be permitted to assign them to other people, leading ultimately to a more diverse industry structure. Importantly, by placing a cap on annual licence prices and the assignment fees paid to operate a perpetual licence, the recommendations will bring a halt to the ever escalating increases in licence values that have characterised taxi regulation over recent decades. The inquiry could have gone much further in its approach to removing the restrictions on taxi and hire car licences. In effect, Victoria’s taxi industry has operated for many years as a ‘closed shop’, with a small number of licence holders protected from the effects of competition at the direct expense of consumers, taxi operators and taxi drivers (who continue to experience low levels of remuneration, poor working conditions and a highly risky work environment). The inquiry found no public interest or other grounds for allowing this situation to continue. However, we have not endorsed an immediate move to an open market and are instead proposing a more moderate reform approach, recognising that substantial reductions in taxi licence values are likely to cause financial difficulties to some licence holders. It is important to appreciate that in adopting this middle path, licence holders will continue to enjoy a level of protection that comes at a cost to paying customers and taxi drivers. Melbourne taxi users pay around $120 million each year (through taxi fares) to maintain the value of taxi licence plates. Under the inquiry’s proposals, taxi users will continue to underwrite taxi licence values, but to a much lesser extent than currently occurs. It is disappointing − if unsurprising − that key elements in the industry continue to resist even a moderate approach to reform. The inquiry’s view is that the industry has allowed a situation to continue where much of the revenue generated by the industry flows to licence holders rather than those providing services on the ground: operators and drivers. The industry must bear considerable responsibility for its efforts to prevent past governments from adopting fundamental reform and for failing to take action to lift performance, increase service availability and attract and retain quality drivers. Now, with high levels of customer dissatisfaction and low occupancy rates threatening the industry’s future, these elements should not be allowed to derail essential reforms. It is clear that opening up entry, increasing competition and reducing ineffective and costly regulation is the best way forward for the industry. These reforms will not only improve the choice, quality and availability of services for taxi and hire car users; they will also assist the industry to become more accountable for its performance and to boost demand for its services. Those in the industry who are willing to explore new and innovative service options, and adopt a more 2 competitive business model, will be encouraged to do so. These reforms will also improve safety (including though safer and more accessible vehicles), lead to better quality drivers, give operators greater freedom in how they conduct their businesses and deliver a much reduced regulatory burden on operators and networks. Some of these results will take time to emerge. The inquiry is recommending a comprehensive reform package that will unleash the dynamic forces of competition in an industry that has been largely shielded from these forces for decades. While the inquiry is recommending pacing the reforms over three to five years, some volatility can be expected along the way as the reforms filter through the industry and settle down. The Victorian Government needs to hold the course on these reforms and ensure that a competitive market that is responsive to customer needs emerges over time. Of course, any significant regulatory reform will have varying impacts on industry participants. For some, the reforms will present new options and be seen as positive; for others, adjusting to changed circumstances will present difficulties and be seen as negative. Clearly, there will be an adverse impact on a small group of licence holders − mainly those who purchased their licences within the last 10 years. While the inquiry has found no legal or economic justifications for compensating licence holders, we have suggested to the Victorian Government that it could consider providing tightly targeted assistance to licence holders facing considerable financial difficulties as a result of these reforms. Since the late 1980s, there have been a number of attempts in Victoria to reform the taxi industry. These efforts have met with little success in the face of vigorous industry opposition. The opportunity for reform provided by this inquiry − unprecedented in its scale and the extent of its analysis − should be welcomed by all who care about the future of the taxi industry in Victoria and who want to see it survive and succeed as a genuinely competitive and innovative industry that offers high quality services to consumers and a fair distribution of revenue to participants. I thank the many people who have made valuable contributions to the work of the inquiry over the past 16 months. This includes industry participants, taxi users, community and business groups, local councils and economists and industry experts. I also thank the Minister for Public Transport, Terry Mulder, and staff of the Victorian Taxi Directorate and the Department of Transport for their cooperation and assistance. Finally, I thank my talented and hard working inquiry team, particularly Commissioner Dr David Cousins and Project Director Ms Megan Bourke-O’Neil, for their support, diligence and commitment over the course of the inquiry. When announcing this inquiry in 2011, Premier Ted Baillieu indicated that he expected the inquiry to address “long- standing and deep-rooted” issues and to recommend “sweeping reforms” to the industry that would improve low levels of public confidence, provide better security for drivers and safety for customers, and ensure that drivers are properly trained and knowledgeable. I am confident that our proposed reforms are nation-leading, have more than met the Premier’s expectations and will address the serious and systemic problems in the industry identified by the Victorian Government. I look forward to the Government’s response to the inquiry’s recommendations. Professor Allan Fels AO Chair, Taxi Industry Inquiry 3 Contents Executive summary ........................................................................................................................................................ 6 Table of recommendations ........................................................................................................................................... 16 1 Introduction .......................................................................................................................................................... 37 2 Developing the inquiry’s vision for the industry
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