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The Secretary Economy and Infrastructure Committee Parliament House, Spring Street EAST VIC 3002

RE: Inquiry Into Ride Sourcing Services Submission by the Australian Taxpayers’ Alliance

Introduction

1. The Australian Taxpayers’ Alliance (ATA) welcomes the Victorian Legislative Council’s Economy and Infrastructure Committee’s Inquiry into the need for regulation of ride sharing services in

2. The ATA is a grassroots advocacy organisation dedicated to representing Australian taxpayers, and supporting leaner & more efficient government and reducing our regulatory burden. The ATA has over 25,000 members nationally, of which over 7,000 reside in the state of Victoria.

3. The ATA submits that ride sharing is a positive innovative addition to our economy generating considerable benefits to consumers and increasing public safety. As such, it is submitted that the government take all steps to foster this burgeoning industry through immediately abolishing all barriers to entry. It is further submitted that there is no economic or ethical case for regulatory compensation for present taxi license holders, however, in the event that such compensation be paid, that funding be sourced from consolidated revenue and not through the imposition of another new tax on consumers and users of point to point transport.

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Barriers to Entry

4. It is an uncontested economic fact that barriers to entry into markets through licensing regimes are primarily the result of established relations between government and industry sectors who seek to protect their monopoly power in the market and engaging in what is termed ‘rent- seeking’ behaviour. Through expending resources on lobbying the government for privileges, these expenditures dissipate the gains to the beneficiaries, create inefficiencies to the economy, and potentially harm the overall economy.1

5. While licensing regulations are frequently couched in the language of consumer protection and the public interest, it is submitted firstly that there is no credible evidence substantiating this as it applies to the point to point transport industry, and secondly, that less choice and higher prices for consumers is indeed contrary to the public interest.

6. Applying the model of the protected monopoly to the Victorian taxi industry, the regulations in place presently create barriers to entry which protect the taxi monopoly thereby stifling any attempt at real competition while favouring incumbent operators over consumers. As a result of these barriers to entry, customer service remains poor, and a lack of innovation exists in service delivery. As such, it is submitted that it is exceedingly disingenuous for proponents of the status quo to seek to protect industry monopolies through regulations while claiming to protect consumers from monopolies. Therefore it is recommended in the strongest possible terms that all barriers to entry be removed without delay.

Consumer Protection and Safety

7. A frequent criticism of ride sharing services is that of a lack of customer safety. It is submitted firstly, that there is no evidence to substantiate such fears, and indeed, evidence from Victoria and other jurisdictions show the contrary to be the case, secondly, that ride sharing companies such as have numerous safeguards and protocols to ensure customer protection and safety in place, and thirdly, that despite numerous promises to reform, complaints overwhelmingly demonstrate that the Victorian Taxi industry has completely failed to ensure customer safety and lost the right to comment on this matter.

1 Tullock, G. “The Welfare Costs of Tariffs, Monopolies and Theft. Western Economic Journal 5 (1967): 224–232; Krueger, A.O. “The Political Economy of the Rent-Seeking Society. ”American Economic Review 64 (1974): 291–303.

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8. It is noted that for Uber, presently the most popular ride sharing service in , prospective drivers are expected to pass rigorous background checks and their vehicles must meet appropriate standards. Drivers with any type of criminal records immediately prohibited from registering with Uber. Similarly, a zero tolerance policy for drivers applies with regards to drugs and alcohol. Furthermore, Uber cars must be less than 10 years old for safety reasons, and get mechanical checks every twelve months.

9. The ATA also draws the committee’s attention the fact that the system in place with Uber through the rating reputation system, consumers are protected from bad drivers, while drivers are protected against bad consumers. This system rewards good behaviour and punishes bad behaviour from both sides of the transaction ensuring significantly higher levels of service. We note the comments of Professor Jason Potts, Professor of Economics at RMIT University, who states in relation to this that “as information platforms, the reputations of buyers and sellers become public and can move from one platform to another, making the consequences of bad behaviour all the more costly, and rewarding good behaviour. Interestingly, this means there is a lot less role for public regulation in these markets“2.

10. Safety risks for drivers are also reduced through the use of ridesharing services through both the record of the passenger kept, and online processing payments. Due to all payments facilitated online, the lack of cash on hand results in less likelihood of robbery, theft, and assault.

11. It is also noted that all Uber cars using the app are tracked using GPS, which means that the company has a record of every journey, facilitating both safety of passengers and preventing taxi drivers swindling consumers through taking lengthy bypasses.

12. We further note that an investigation by consumer advocate group CHOICE “has debunked the NSW Taxi Council's claims that ride-sharing services places passengers at risk, declaring leading disrupter Uber as safe and reliable”.3

2Potts, J “Shaping Up for the Sharing Economy”, The Sydney Morning Herald, June 14, 2015 3 Han, E. “UberX rides are safe, says Choice, busting the taxi council's risk claims”. Sydney Morning Herald. September 24, 2015 accessed via http://www.smh.com.au/nsw/uberx-rides-are-safe-says-choice-busting-the-taxi-council-claims- 20150923-gjswf9.html

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13. The ATA further notes the disastrous history of the Victorian taxi industry in terms of protecting customer safety, with a record of what can only be described as one of morally reprehensible cover-ups.

14. In 2013, research by the Victorian Institute of Forensic Medicine demonstrated an epidemic of “women being sexually assaulted by taxi drivers preying on lone females leaving clubs and parties”4. Despite promises by the industry to clean up the act, in November 2015 it was reported that “Sexual predators working as taxi drivers routinely prey on young female passengers — despite promises the industry is being cleaned up” with documents released under Freedom of Information Requests detailing a staggering sixty complaints of sexual harassment in the two years since the pledge for reform. With only a small minority of incidents being reported, this is absolutely unacceptable, and, more alarmingly, almost no taxi drivers were identified, prosecuted, or discharged.5

15. One example (of many) the failure of the Victorian taxi industry to protect customer safety was a taxi driver caught on video telling a passenger she was his “dream girl”, asking if he could touch her, placing his hand on his crotch and leaving it there. It is the response of the Victorian Taxi Services Commission that is particularly telling, with the woman saying she was told not to contact the police and that no action was taken against the cab driver by the Commission.6

16. The ATA also wishes to draw the Committee’s attention to a wealth of data which shows that the use of ride sharing in other cities around the world has seen drunk driving rates decreasing or remaining steady thereby saving lives7.

Competition 17. Technological change and innovation creates industry transition challenges but increases competition. History demonstrates that embracing change and innovation leads to higher productivity and consumer benefits in the long term. Technological innovation leads to a greater utilisation of scarce resources which increases the wealth of our society.

4 Silverster, J. “Cabbies Prey on Women”. . September 14, 2013. Accessed via http://www.theage.com.au/victoria/cabbies-prey-on-women-20130913-2tqfh.html 5 Mickelburough, P. “How rogue Victorian taxi drivers are preying on female passengers.” The . November 29, 2016. Accessed via http://www.heraldsun.com.au/news/law-order/how-rogue-victorian-taxi-drivers-are-preying-on- female-passengers/news-story/c659fd984293379c2a5de0089bac7591 6 Creepy cabbie asks to touch 'dream girl' passenger. Yahoo/Channel 7 News. December 14, 2015 7 Dills and Mulholland, “Ridesharing, Fatal Crashes and Crime”, Social Science Research Network (2016), accessed August 3 2016, http://ssrn.com/abstract=2783797

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18. It is self-evident that the inexorable rise of ride sharing services who have harnessed new technologies like smart phone apps to connect rider with driver and car for point-to-point transport. This has provided an efficient, convenient and competitively priced alternative for consumers.

19. In addition to creating consumer benefits through innovations such as GPS tracking, competition has also resulted in a lowering of the price of transport: UberX is on average 19.77% cheaper than taxis in Australia’s four biggest cities.8

20. It is also noted that a report by Deloitte found that Australians would save 800,000 hours a year by catching an Uber instead of a taxi, due to the extra time waiting for taxis, generating considerable economic surplus9. At current levels in Sydney, Melbourne, and there is a net consumer benefit of $81 Million a year accredited to the creation and operation of UberX.10

Impacts of Regulation on the Taxi Industry and Industry Transition:

21. It is not disputed by the ATA that the reallocation of resources based on technological advancements creates some short term losers. This occurs in every industry – and indeed is at the bedrock of our modern economy. It is through technological change, the strive to innovate, to create, to excel, that we are living in a period of the highest living standards in human history. In the words of economist Joseph Schumpeter, it is this process that “that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism”11.

22. Accepting that technological change is the engine driver of our economy, despite recognising that some short term pain may occur throughout of structural adjustment, creates overall benefits that are so overwhelming as to ensure it worthwhile. Furthermore, industry adaptation to technological change, rather than appeals to government authority to resist change and punitively enforce the monopolistic status quo, creates benefits which will eventually flow to other sectors of the economy, particularly to tourism.

8 Deloitte Access Economics, “Economic Effects of Ridesharing in Australia”, 2016 p.30 9 Ibid p27 10 Ibid p27 11 Schumpeter, Joseph A. “Capitalism, Socialism, and Democracy” 3d ed. 1942. New York: Harper and Brothers, 1950 p86

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23. It is further submitted that there is no economic or moral case for compensation to be given to taxi license holders due to any potential losses as a result of this technological change. Nobody would seriously argue that horse and buggy drivers should have received government protection from the advent of the automobile, that we should have bailed out makers of VHS when DVD’s then digital downloads came along, that Melway should have received a bailout due to GPS and smartphones, and the same applies in this instance.

24. It is submitted that any bailout of the taxi industry is unfair and unjust to taxpayers and consumers. In particular, it is noted that taxis have earned already earned an economically fair return and still hold significant value in the “ride-hailing” market which is unavailable for Uber.

25. Furthermore, taxis were warned about possible licensing regime changes and have had years to prepare, so even newer purchases of licenses were the taxi operator’s choice. Finally, Taxpayers have already paid enough money to the taxi industry through higher fares for decades12.

26. The ATA wishes to draw the Committee’s attention to a seminal report by Professor Richard Holden, of the University of , which concluded that “the economic case for compensating existing license holders is not strong…” and that “there is a lack of publicly accessible evidence to support the argument that compensation should be paid”13.

27. It is further noted that a taxi license should not be considered a “property right” deserving of compensation. It is noted that in analogous circumstances manufacturers have not been compensated when import quotas licenses have been removed opening them up to international competition. Similarly, the loss of exclusive licenses for the legal profession when governments removed their exclusive right to engage in conveyancing of property were not accompanied by compensation. Such directly applicable precedents should be followed in this instance.

28. The ATA also notes that only 30% of taxi licenses are owned and operated by the owner. The taxi industry isn’t for the small ‘mum and dad’ operators, with the majority owned by large corporations such as – a corporation which previously has been hit with multi-million

12Holden, R, “ Compensation in the Australian Taxi Industry”, (2016) 13 Ibid p4

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dollar fines by the Australian Competition and Consumer Commission.14 It would be unconscionable for such corporations to be rewarded for their poor behaviour (not to mention price gouging through 10% credit card surcharges prior to government action).

29. Furthermore, it is noted that that ride sharing and taxi services operate on different business models, and as such will always be a demand for taxi services. Ride sharing services do not accept street hails, cash payments or utilise ranks and as such shall continue to have an advantage over the ride-sharing industry .15

30. It is finally noted that, in the event that the aforementioned submissions are disregarded, and some payouts be made, that a)these be limited to a maximum of two licenses per person and b)that, in line with the recommendations of Professor Holden, they come out of consolidated revenue and not through the imposition of a new tax. With sluggish economic growth in Victoria, consumers should not be forced to pay yet another new tax which, in effect, shall be little more than revenue raising for the state government. This would be in line with public opinion on this matter with research demonstrating that 70% of Australians oppose measures to compensate the taxi industry by introducing fees on point to point transport.16

Remuneration and Workplace Rights for Drivers:

31. It is noted that under present Australian workplace legislation, ridesharing drivers all work as independent contractors and not employees of ride sharing company. It is submitted that this results in much better work arrangements and flexibility for operators, whilst in addition average remuneration after deductions is much higher than the minimum wage in Australia.

32. At the end of 2015, 12,680 drivers were registered with the UberX application. Changes to this platform may cause large unemployment or underemployment damaging the Victorian economy.17 In particular it is noted that in the first 12 months of UberX of operation over $4 million in driver revenue went towards 30 postcodes in Sydney with the highest levels of unemployment.18

14 ACCC v Cabcharge Australia Ltd (2010) FCA 1261; ACCC v Cabcharge Australia Ltd (No 2) (2010) FCA 837 15 Ridesharing – A 21st Century Transport Solution for QLD, p. 7, 20 16 Lonergan Research, “Uber Levy”, P.7 June 2016 17 Deloitte Access Economics, “Economic Effects of Ridesharing in Australia”, p.33 (2016) 18 ibid

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33. Ride sharing has given rise to exciting new employment opportunities with the potential to create thousands of new jobs. Ride sharing apps creates a platform where drivers can connect with consumers. With both unemployment and underemployment in Victoria being problems of serious concern, ride sharing gives many unemployed people with a car and a phone a seamless entry into the workforce, flexible work arrangements and financial independence.19

Access for People with Disabilities:

34. The ATA notes that Uber has partnered with Enabled Employment which has accommodated people with disabilities who are still capable to drive. This improves access to the labour market for some deaf and hearing impaired people who might be hindered in other industries. UberX proactively changed their program to use flashes whenever a noise is normally used.

35. UberASSIST drivers are trained to help transport people with disabilities/special needs and supply 10% of all UberX hours.20

Recommendations

36. The Australian Taxpayers’ Alliance recommends to the committee that: a. The Victorian government proactively affirm its commitment to innovation, technology, and the ride sharing industry b. All barriers to entry to the ridesharing industry be abolished, excluding basic safety checks c. There should be no taxpayer compensation given to current license holders d. In the event that compensation is given, it should be capped at a rate of no more than 2 licenses per person, and be funded through consolidated revenue and not a new tax or surcharge.

Conclusion

37. Recent years have witnessed significant technological change that has transformed the Victorian economy through linking service delivery merchants with consumers. In particular smart phone apps have revolutionised the way we communicate and engage in commerce. By increasing

19 Ridesharing – A 21st Century Transport Solution for QLD, p. 25 20 Deloitte Access Economics Op Cit p.49

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