ESC 2016 review of taxi fares

Jun 17 2016

Final decision
After a brief period of consultation, on 17 June, the ESC released their final decision on taxi fares.

The final determination maintains maximum fares for the metropolitan zone and eastern area of the Urban and Large Regional zone (Dandenong, Frankston, and the Mornington Peninsula) at the same levels as the 2014 determination.

For the areas of Geelong, Ballarat and Bendigo within the Urban and Large Regional zone, the determination extends the times during which a late night fee and holiday rate may be charged. 

The new taxi fare determination amends the previous 2014 determination and will be effective as of 1 July 2016. The report and determination are available on the ESC website.

Background
The Essential Services Commission (ESC) has the power to determine metropolitan and urban taxi fares. The ESC is required to review taxi fares every 2 years.

On 3 May 2016 they published a full 200 page report and 15 page summary available on their website here outlining their draft decision on metropolitan and urban taxi fares.

Given price notification, this review has no bearing on country or regional taxis.

The draft decision made several recommendations regarding both metropolitan and Urban taxi fares which are outlined below.

 Metropolitan

 No change to the current level of maximum fares outside peak tariff periods.

 Peak tariff rates apply as maximum fares from 7pm (rather than 10pm) to 4am on Friday and  Saturday nights.

 Peak tariff rates would apply as a maximum from 7pm on the evening prior to all public holidays  and through until 4am the day following public holidays.

 A new ‘peak booking charge’, capped at a maximum of $10, could be charged subject to conditions  and industry feedback.

 Eastern urban - Dandenong, Frankston, Mornington Peninsula

 Dandenong, Frankston and the Mornington Peninsula currently use the same fare schedule as  metropolitan Melbourne. This is proposed to continue with the changes as proposed to the metro  zone, if finalised, to be applied to these areas also.

 Western Urban (Large Regional) – Geelong, Ballarat and Bendigo

 No change to the current level of maximum fares outside peak tariff periods.

 Late night fee ($3.40) could be charged from 7pm (instead of midnight) to 6am on Fridays and  Saturdays. No change to late night fee times on other days.

 Holiday fee ($4.20) could be charged from 7pm the evening prior to public holidays, and continue to  6am on the following mornings.


The future of fare regulation?

Despite now knowing the outcome of the ESC’s review of taxi fares, the VTA believes that given the likelihood for further regulatory changes within the industry which may result from a decision from Government on how to respond to the emergence of ride hail services, the regulation of taxi fares may again come under scrutiny prior to the ESC’s legislated minimum review period of 2 years.

As we believe this will continue to be a ‘live’ issue in the industry, the following information draws on the VTA’s submission in response to the ESC’s draft decision on metropolitan and urban taxi fares to illuminate our position on the future of fare regulation.

Given the demonstrated inability to compel compliance with existing fare regulation by new market entrants, and the unlikely ability to do so in the future, it is only reasonable that all CPV providers be given the freedom to compete on fair terms.

The VTA are yet to hear a compelling argument as to why price surging within the current context is not blatant price gouging. Increasingly, public commentary points to the fallacy of the idea that surges, up to a factor of 10 times, are motivated by a desire to increase supply at time of high demand. Only competition will be effective in restraining this kind of gouging and this will ultimately soften the market and ensure that any increase in price is the result of shifts in demand not simply profiteering.

A genuinely competitive market with dynamic pricing across all service providers would result in competition for both drivers and customers during quiet and busy periods with the customer the beneficiary. Naturally, there should be an expectation on all providers that there is transparency for customers as to the price they will be charged for any given journey. The mechanism by which this is achieved should be determined by providers.

Overall, whilst we do not believe the draft decision goes far enough in offering taxi businesses in metropolitan Melbourne and the eastern urban area the opportunity to fairly compete with ride hail providers, we appreciate the attempt made by the ESC within their scope of responsibility to extend some limited control over the pricing of taxi services back to the industry.

The restriction of hours during which the PBC can be charged again highlights the very fixed view of the taxi market in terms of demand and supply and a belief that all taxis fit within the same broad three-tiered demand model.  We see this as flawed, particularly as it relates to demand patterns which differ greatly for wheelchair accessible taxis and taxis that operate predominantly in the suburbs.  Again, while we support the attempt to move away from a highly regulated structure represented by the PBC proposal, it demonstrates that decision making is being done on the basis of a very simple model which tries to second guess the market.

The VTA needs to emphasise that we have made it clear to Government that the shift from a regulated to a market driven price is a significant change for both the industry and consumers to come to terms with. It is not something that can simply be done overnight. As a result we have argued for the retention of an ESC determination of fares for 3-5 years to allow the industry and customers to adjust. We have suggested that during this transition once a company is ready to set their own price they should be able to implement the change, until then they would be required to continue to follow the ESC maximum fare determination. The VTA has also mooted the idea of the limiting the initial change to ‘pre-booked fares’ only to protect more vulnerable and less technologically savvy customers during the transition. 

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