Regulation versus Private Enterprise for the Taxi Industry

Taxi Industry voices its disquiet over the Draft recommendations of the Victorian Taxi Inquiry.

On September 28 2012 the Inquiry initiated by the Victorian Premier Ted Baillieu on the 28th March 2011 submitted a final report to the Victorian Minister for Public Transport for consideration.

However, the Taxi Industry Stakeholders Victoria (TISV) website above has published many articles critical of the draft report recommendations released in July for public comment.

Of most concern has been the proposal to issue new taxi licences at fixed prices, possibly as low as $20,000, to increase competition by encouraging the entry of more drivers. This would render existing driver owned licences for which they may have paid up to $500,000 worthless. It would precipitate a financial crisis for them, and a dilemma for the banks that have loaned them perhaps 50-60% of their investment, oft-times against the security of the family home.

Regulation versus Private Enterprise for the Taxi Industry

The Inquiry conducted by the expert “prices cops” Professor Allan Fels and Dr David Cousins has focused on customer needs, and come up with many worthwhile recommendations for reform. Not surprisingly their recommendations can be summarised as “more service for less consumer cost” with changes enforced by regulation. They regard increased competition as the tool to use to lower prices, but unexplained is who will pay for the higher vehicle and driver standards being demanded.

Unless the government is willing to subsidize the costs, the only logical answer to the problem is to turn to the capital markets.

The irony is that Professor Fels has strongly criticised Cabcharge, an existing publicly listed company within the Australian Taxi Industry, and floated in 1999, for anti-competitive behaviour, and for increasing the cost of taxi service delivery.

It is true that in 2010 Cabcharge was fined $15 million for anti-competitive pricing. The company viewed its action as limiting a competitor from “free-loading” on the company’s technologically advanced taxi payment systems. The regulator (ACCC) however argued that the Cabcharge payment systems constitute infrastructure, and should be made available to competitors for a nominal fee.

The public if they wish can avoid the maligned 10% surcharge by paying cash. In addition the system accepts payment by all existing credit card providers. Unlike the retail surcharge of 1-4% on credit card payments just to meet accounting costs, this payment surcharge is the principal source of revenue for Cabcharge, and from this income stream it is able to improve vehicle and driver standards.

Cabcharge has forged links with the taxi network Yellow Cabs, and more recently the bus operator “ComfortDelGro“. With the mindset of a regulator, Professor Fels sees such associations as examples of incestuous anti-competitive vertical integration. Others might see the associations as mutually beneficial for improving industry standards.

Other taxi operators have also chosen the Cabcharge payment system on merit, resulting in about 97% penetration of the taxi market.  The company assumes the credit risk for each payment, eliminating the likeihood that drivers will not be paid.


Regulation within the taxi industry should not stifle private enterprise. Rather it should be encouraged to increase innovation, and improve standards. Better driver education, safer taxis, licence management, and more advanced booking systems are all possible with more capital. It would be a bit like re-inventing the wheel, to come up with a superior taxi payment system, but there are plenty of other opportunities for involvement within the industry.

Categories: Community Issues

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