Recently the VTA wrote to the Minister for Transport outlining its concerns with the regulatory structure within which the industry operates, and the level of fares and the way they are set.

Set out below are key sections of the VTA's submissions.

Inappropriate Regulatory Settings

For some time the VTA has been expressing its concern regarding the taxi-cab licence assignment process, its failings and the serious consequences of this for the Victorian taxi industry. Of most concern to the VTA are the high licence assignment prices being generated by inappropriate regulatory settings and the impact this having on taxi driver and operator income, and the service received by the customer.

A Cap on Assignment Prices

The Victorian taxi industry is a heavily regulated commercially funded section of Victoria's Transport sector. The VTA has always, and continues to; support the regulation of the industry in key areas such as:
• The number of licences available to be operated
• The standards to be applied to service delivery, and
• The end price paid by the consumer.

After much thought, analysis and discussion with industry stakeholders the VTA has formed the view that any new Transport Act, or amendment to the current Act, must include a provision that gives the Minister (and the Minister alone) the power to introduce a cap on the value of licence assignments.

The Essential Services Commission (ESC) covered this issue at length in its 2008 Review of Taxi Fares. In that review, the ESC urged the Government to introduce a cap on the price of licence assignments to stop what we are now seeing - the exponential increase in the value of licence assignments. The ESC pointed out that fares cannot be simply lifted to offset these price increases because this would merely lead to a problem of circular economic rent.

While the VTA acknowledge the economic rationale behind the ESC's work, it is not satisfied that the industry should absorb the costs generated by inappropriate regulatory settings. Given the taxi industry is funded by way of its revenue (as opposed to Government subsidized transport services) the VTA believe the price of the service must reflect the true costs of providing that service.

Blind Trading Platform

The current arrangement by which licences are traded and assigned is simply corrupt and price distorting.

It is well know that, as a part of the licence assignment process, cash payments and other forms of illegal and under the table payments are often demanded. To stop the illegal payments occurring the VTA believe the opportunity for the seller to demand the payment needs to be removed. The VTA propose this is done by introducing a blind trading system with a single broker - the Department of Transport.

Sub-assignments

The issue of sub-assignment of licences has grown in prominence dramatically in the recent past, largely due to pressures being created by soaring licence assignment costs and low industry revenue from an undervalued fare prices.

It has been stated that the existing Act and its subordinate parts, are not sufficient to deal with this problem. The VTA have urged the Minister to either amend the existing Act, or introduce stronger anti sub-assignment provisions.

Three Year Minimum Assignment Period

At present, the licence assignment period cannot extend beyond 3 years. This timeframe is completely out of line with the life cycle of a taxi vehicle. This means that an operator can be left with payments on a vehicle they are unable to operate as a taxi because they have lost the licence before that vehicles life has expired.

The VTA is of the view that the two timeframes need to be brought much closer together. There are several ways this can be achieved, such as no specification on the period of the assignment, a minimum period rather than a maximum period, or a maximum period of 5 years.

The VTA's preferred option is to make the assignment period a minimum rather than a maximum of 3 years, other than under specific hardship provisions. This way the operator is provided an opportunity to negotiate more time and achieve greater certainty, while the licence holder is not forced to sign a contract where the mandated duration could be seen as unreasonable.

Mandated Bailment Agreement

The VTA is not in favour of a Bailment Agreement that mandates the commercial relationship between a driver and an operator. It is, however, supportive of a single written agreement determined by the industry and the Government which is to be used wherever an agreement of bailment is entered into.

The mandated Bailment Agreement would necessarily need to contain mandated conditions. The VTA believe these conditions should include, but not be limited to:
• Conditional indemnity for the driver
• Maximum number of hours permitted to be worked in a single shift
• Requirement that operator pays the WorkCover premium
• A section where the individual parties clearly set out the commercial relationship they are both entering into.

The agreement should also contain a default arrangement, where if the commercial section of the agreement is not completed but the agreement is signed by both parties, a default arrangement becomes the agreement.

Fares and the Way They are Set

The Victorian taxi fare rate sits at around 25% - 29% below that of NSW. The only justification for this could be that NSW costs are higher than Victoria, but they are not. In fact, VTA analysis demonstrates that the biggest cost to a taxi operator, the value of licence assignments, is significantly lower in NSW.

In practical terms, this scenario results in Victorian taxi drivers earning between $7 and $11 an hour. Australia's current minimum wage is $14.31 per hour.

As far as the VTA is concerned this is completely unacceptable. In effect, the Victorian fare structure suggests that taxi drivers don't even deserve to earn the same as untrained students working part time to support themselves while they attend university and high school, or indeed be able to support a family.

Industry Fare Levels

As stipulated in the preamble, Victoria's taxi drivers earn between 25% and 29% less than taxi drivers in NSW. This situation has far reaching effects on the service the customer receives. In relation to taxi operators, the very marginal return has created a culture of extreme cost and risk avoidance. For drivers, it has created a lack of pride and disinterest in what they do. The VTA submit that this is not the fault of the individuals concerned, but rather an expected reaction to their financial situation.

The VTA is of the firm view that like any product or service, to some extent you get what you pay for. At the moment the Victorian fare rates mean that drivers and operators tend to be transient and always looking for a way out.

An Appropriate Fare Setting Model

At the heart of the discrepancy between NSW and Victorian fares is the fare setting model.

Like Victoria, NSW has an independent economic advisory body (IPART) which designed the fare setting model and administers it. The IPART model annually assesses of the movements in taxi input prices for 16 different cost components.

Unlike its Victorian counterpart, the Essential Services Commission (ESC), IPART adopted this approach some time ago - introducing specific taxi industry based cost model. The use of this model has led to consistent and sensible pricing of taxi services in NSW.

For a number of years now the VTA has been calling on the ESC to introduce a specific taxi industry based cost structure model so that costs unique to the industry are adequately accounted for. The primary reason that the ESC gave for not implementing a model like this in Victoria is that is "costly" to administer.

The VTA would argue that the cost of not using an adequate price setting model is inordinately more expensive to the taxi industry and its constituent parts. Presumably, the increased costs the ESC allude to stem from the need to do industry surveys of taxi costs annually. The VTA reject this assumption on the grounds that surveys are relatively cheap and easy to undertake- particularly given the VTA's continual offers to assist in distribution and collection of such material.

The VTA have urged the Minister to request that the ESC develop a specific taxi industry based cost model The VTA also submit to you that 2010 needs to see between a 25% and 29% increase in fares to make up for the fact that 5 out of the last 10 years has seen no fare increase.

Real Taxi Industry Costs Structure

In its 2007-08 Taxi Fare Review the ESC noted the lack of quality data on the Victorian taxi industry. They also noted the poor response from the taxi industry to a survey conducted on their behalf.

The VTA is in agreement with the ESC that the lack of quality data and the poor response from the industry was disappointing. At the time the VTA tried to inject more accurate data into the ESC investigation. The data the VTA provided (which was far more reflective of true industry costs) was largely ignored by the ESC, despite their acknowledgment regarding the poor return they received in regards to their surveys.

While the VTA share the ESC's disappointment with the lack of quality information provided with regards to industry costs, it cannot condone the ESC's approach of continuing to use misleading and inaccurate data to inform the 2007-08 review of fares. This has, in part led to the situation in which the Victorian taxi industry currently finds itself.

As the ESC stressed in its 2007-08 Taxi Fare Review report that more comprehensive and reliable data must be collected in regards to the costs of operating a taxi(s). It is unacceptable to the VTA that fares are based on data that is simply convenient for the economic regulator. As it has said in the past, the VTA stands ready to assist in delivering the required data relating to operating costs should it be asked.

Concluding Comments

The VTA submit that there is a strong relationship between customer service levels and job satisfaction. The taxi industry is being failed on a number of regulatory levels including the most basic, fair reward for effort.

The VTA believe that this is not the intention of the current State Government. The VTA have sought urgent and meaningful dialogue with the Government to fix the ailing regulatory structures and ensure drivers and operators are fairly remunerated.

For some time now, the VTA have been told by Government representatives that it will not act unless there is a perceived benefit to the customer or the public. While the VTA is happy to work with the Government to achieve better outcomes for the public, the VTA also believe the Government has a regulatory obligation to the industry.

Return to the News