ACT Review of Taxi and Hire Car Legislation, March 2000.Pdf
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J ACT DEPARTMENT OF URBAN SERVICES FINAL REPORT NATIONAL COMPETITION POLICY REVIEW OF ACT TAXI AND HIRE CAR LEGISLATION March 2000 < FRG FREEHILLS REGULATORY GROUP Dep artment of Urban Services NCP Review of ACT Taxi and Hire Car legislation Final Report Table of contents Page Page Executive Summary 1 1. Introduction 8 1.1 Overview of National Competition Legislation Reviews 8 1.2 Outline of report 12 1.3 Disclaimer 13 2. Legislative overview and objectives 14 2.1 Brief history of the Motor Traffic Act 1936 14 2.2 Broad regulatory framework 14 2.3 Legislative objectives 16 3. Market definition 18 3.1 Small commercial passenger vehicle transport services 18 3.2 SCPV booking & dispatch network services 24 3.3 SCPV driver services 25 3.4 ACTION buses 25 3.5 Comcar 26 3.6 Tourism 27 4. Taxi and hire car licence quota restrictions 28 4.1 Overview 28 4.2 Objectives 29 4.3 Benefits 33 4.4 Costs 34 4.5 Compensation issues 36 4.6 Alternatives 41 4.7 Recommendations 49 5. Licence categories and service restrictions 53 5.1 Overview 53 5.2 Restrictions 59 5.3 Impact of taxi and hire car leasing 72 6. Fare regulation 75 6.1 Objectives 75 6.2 Costs 76 6.3 Benefits 77 6.4 Alternatives 78 6.5 Recommendations 80 7. Vehicle standards 82 7.1 Overview 82 7.2 Objectives 87 Freehill Hollingdale & Page MElCC\freehill-TaxlfinaLdoc pagel " Department of Urban Services NCP Review of ACT Taxi and Hire Car Legislation Final Report 7.3 Costs 87 7.4 Benefits 87 7.5 Recommendations 88 8. Operator and Licence Holder Accreditation 91 8.1 Operator Accreditation 91 8.2 Licence Holder Accreditation 101 9. Driver Authorisation 103 9.1 Overview 103 9.2 Objectives 107 9.3 Costs 107 9.4 Benefits 107 9.5 Alternatives 108 9.6 Recommendations 109 10. Driver Conduct 110 10.1 Overview 1I0 10.2 Touting for passengers 112 10.3 Cab-rank (first on, first off) rule 112 10.4 Refusal of Hiring 113 10.5 Other 113 10.6 Recommendations 114 11. Taxi network contract requirements 115 11.1 Overview 115 11.2 Objectives 116 11.3 Costs 117 11.4 Benefits 118 11.5 Alternatives 120 11.6 Recommendations 122 12. Cross-border restrictions 124 Annexure A - Terms of Reference 126 Annexure B - Overview of general rationale for Government intervention 128 Annexure C - Overview of ACT Taxi and Hire Car Industry 131 Annexure 0 - Calculation of deadweight loss 149 Annexure E - Examples of taxi industry reform 153 Annexure F - List of submissions 158 Annexure G - Bibliography 160 Index of Tables Table 1: Summary recommendations 5 Table 2: Overview of preferred regulatory regime 7 Table 3: Current rank capacity 23 Table 4: Taxi licence sale and auction prices 39 Freehill Hollingdale & Page MELCC\freehill~Taxifinal.doc 17 May 2001 (10:43) page Ii " Department of Urban Services NCP Rev~ of ACT Taxi and Hire Car Legislation Final Report Table 5: Comparison of licence quota reform options' likely impact on participants 50 Table 6: Principal characteristics of licences 55 Table 7: Principal licence conditions 57 Table 8: Licence grant, renewal and transfer fees 1999/00 64 Table 9: Estimates of 1998/99 licence fee revenue from grant or renewal of licences 65 Table 10: Vehicle prescriptions 83 Table 11: Operator accreditation standards 93 Table 12: Driver authorisation requirements 106 Table 13: Summary of driver conduct constraints 111 Table 14: Number oftaxis per 10,000 people 132 Table 15: Real cost of taxi licences by State 132 Table 16: Example of Canberra hire car rates 134 Table 17: Hirings by Canberra Hire Cars 1995-1998 135 Table 18: Estimated average annual return to a hire car operator 135 Table 19: Examples of RHV rates 136 Table 20: Current regulated taxi fare structure 142 Table 21: Estimated taxi operating costs 143 Table 22: Estimated average taxi fares by StatelTerritory for a 5km journey 143 Table 23: Taxi hiring statistics 1998199 146 Table 24: Taxi licence value sensitivity analysis 151 Table 25: Taxi licence elasticity sensitivity analysis 151 Index of Figures Figure 1: Comparative overview of licence quota reform options 3 Figure 2: Costs of quota restrictions 34 Figure 3: Number of taxi hirings 1996/98 147 Freehill Hollingdale & Page MELCC\freehill-Taxifinal.doc 17 May 2001 (10:43) page iii Department of Urban Services NCP Review of ACT Taxi and Hire Car Legislation Final Report Freehill Hollingdale & Page MELCC\freehill~Taxifinal.doc 17 May 2001 (10:43) page iv Department of Urban Services NCP Review of ACT Taxi and Hire Car Leglslalion Final Report Executive Summary Through a process of competitive tendering, the ACT Government appointed Freehills Regulatory Group to undertake the National Competition Policy (NCP) review of the taxi and hire car legislation (the review). The review covers Part III of the Motor Traffic Act 1936 (MTA), the Taxi and Hire Car Regulations (Regulations) and the related administrative processes of, and subordinate instruments arising out of, this legislation. The focus of the review was to assess the extent to which the legislation restricts competition and to recommend more efficient ways of achieving the legislative objectives in order to improve the outcome for the ACT community. The review was public and submissions were invited. An Issues Paper was prepared to assist those wishing to make submissions and written and verbal submissions were received. A Steering Committee was set up to oversee the review, consisting of executive representatives from the Department of Urban Services (DUS) and the Chief Minister's Department. A draft report was prepared which was commented on by the Steering Committee. The views expressed in the final report are those of the reviewer and not those of the Steering Committee, the ACT Government or any ACT Government agency. The review found that the principal market affected, the small commercial passenger vehicle (SCPV) transport market, appears to be segmented according to the two main modes of hiring a vehicle, by pre-booking a vehicle on the one hand and by hailing a vehicle from the street or at a rank on the other. These market segments are referred to as pre-booked SCPV services and cruising (ranking and plying for hire) SCPV services. The legislation restricts competition in these market segments in a number of ways. The principal competitive restrictions are in the areas of constraints on supply of licences and fare regulation. The taxi booking/network services market was also examined. The review considers that the legislation may contribute to Aerial Taxi Cabs Co-operative Society Limited's (Aerial) monopoly in this market. Of greatest impact are the constraints on supply. The review found that the licence quota restrictions do not address legislative objectives and impose substantial costs on consumers and potentially on other participants in the industry such as drivers. The analysis undertaken indicated that by creating transferable perpetual licences and concomitantly restricting the supply of licences, the legislation imposes a net cost on the community known as a deadweight loss. The provisions also create a transfer of wealth from consumers to licence owners and lessees. This deadweight loss and consumer to producer transfer are primarily attributable to licence quota constraints, which: • inflate the value oflicences; • reduce potential total hirings; and • raise fare levels. The deadweight loss in respect of taxi licence quota constraints is estimated to be approximately $407,000 per annum and the resultant transfer of wealth from consumers to taxi licence owners is estimated at around $5.6 million per annum. The deadweight loss attributable to hire car Freehill Hollingdale & Page MELCClfreehill·Taxifinal.doc 17 May 2001 (10:43) page 1 Department of Urban Services NCP Review of ACT Taxi and Hire Car Legislation Final Report licence quota restrictions is estimated to be approximately $55,000 per annum and the transfer of wealth from consumers to hire car licence owners to be approximately $286,000 per annum. The regulations which directly address driver, operator and vehicle standards are generally considered to have significant benefits in the form of higher consumer, driver and public safety and in improved quality of service. Regulation of maximum taxi fares achieves important consumer protection objectives in the context of supply restrictions. However, the review found that in markets with relaxed supply controls and greater entry, a regime of fare approval is less restrictive. If maximum fare regulation is maintained, it is recommended the fare methodology should be examined to establish more efficient pricing. The review found that the regulations further restrict competition by creating several licence categories with a range of conditions and constraints. A distinction between pre-booked services and cruising SCPV services was found to be warranted. However, some of the additional licence categories, such as restricted hire vehicle licences, were considered to impose net costs on the community. There is often a range of approaches to achieving improved outcomes for the community. Accordingly, in respect of licence quota constraints, the review puts forward several options for consideration by Government. All licence quota reform options should be viewed in light of the other reforms recommended. These options include: • Option A: removal of taxi and hire car licence quota restrictions; • Option B: removal of hire car licence quota restrictions with a phased increase in taxi licences; • Option C: removal of hire car licence quota restrictions with no reform to current taxi licence numbers; • OptionD: phased increase in taxi and hire car licences; and • Option E: introduction of an additional category of licences to operate during peak times only. The options have different implications for the issue of compensation.