As I noted in May, it is nearly 30 years since the CIS started publishing critiques of taxi regulation, with the most recent publications being Jason Soon’s 1999 paper and Krystian* Seibert’s 2006 Policy article.
The basic problem is that taxi licences are limited in number, and are sold for huge sums. Jason’s article reported that a Victorian taxi licence cost $265,000 in 1998. 10 years on an Essential Services Commission report put the licence cost at nearly $480,000. The cost of servicing this capital adds massively to the cost of running a taxi, and adds significantly to the fares paid by taxi users. Taxpayers suffer too in having to subsidise taxi use by some disadvantaged groups.
The ESC report points out other problems in the industry as well, such as the depots to which taxis must be affiliated and pay fees which are ‘likely to include an element of “monopoly rent”. ‘
In its latest round of fiddling at the edges of the issue, the Victorian government has announced some extra licences and a fare increase of 6.1%, taking the total fare increases to more than 10% for the year. It also offers what I think is irresponsible investment advice:
Why are the licences being issued by public tender?
To provide an opportunity for small investors, mums and dads, to purchase a taxi licence and address the scarcity issue that has seen licence prices escalate in recent years. (italics added)
The value of these licences is entirely dependent on regulation that fails any conceivable public interest test, and therefore could (and should) be abolished by a future Victorian government, or diminished in value by the issuing of additional licences. As taxis are a price controlled industry, there is the added regulatory risk of prices being kept too low to make a good return on the investment. Essentially this investment advice is a promise that the industry will continue to be regulated in the interests of licence holders, a promise no government should make.
If more licences are to be issued, they should be for a set time period so that a future government can phase out the current licensing system without being exposed to large compensation claims.
* Krystian has reverted to the original Polish spelling of his name.