The Victorian Taxi Association (VTA) recently engaged AKWillis Accounting to undertake an independent analysis of the impact of the introduction of the 55/45 fare box split on taxi operators and taxi drivers and across licence zones in Victoria. Read the full report.

Summary of findings

• Prior to the 19 May fare adjustment findings demonstrated operators across the licences zones in very marginal position, chiefly due to the lack of fare adjustment since 2008.
• Following 19 May fare adjustment, the increase in income resulted in improvement of driver remuneration and viability of operator businesses. The increase is commensurate with the level of fare increase and as such demonstrates there has been no discernible increase in demand for taxi services. It seems reasonable to assume the lag time in new licences being on the road means the results do not reflect impacts of the uptake of over 450 new licences since July.
• 1 July shift to mandatory 55/45 fare box split negated improvements achieved for operators through May fare adjustment and returned operator viability to a marginal position, resulting in only a 2% net increase in operator return since 2008. Findings are consistent with ESC surveying and ATO benchmarking.

Interpretation

• Operator returns were normalised for comparability by removing principal loan repayments and other unique business variances. As a result, the findings presented in the report are 'best case scenario'.
• In reality, a large proportion of operators have outstanding borrowings on capital. The analysis shows that principal repayments on such loans would cause the operators business to be in a cash loss position.
• It has been argued that these loans either need to be renegotiated or reflect poor decision making at the time they were entered into. However, the majority of outstanding loans were negotiated long before the Victorian Taxi Industry Inquiry in an entirely different context when this was the only opportunity for entry to the industry. Lenders are not only unlikely to be willing to renegotiate these obligations, but drawing attention to the amount of unsecured debt is likely to work contrary to the interests of the operator and in some cases has resulted in operator's homes being sold by the lender.

An express desire from the recommendations of the Victorian Taxi Industry Inquiry was to see taxi drivers better remunerated and their welfare enhanced. This was a desire that was, and is, shared by the industry and most reasonable observers. This report shows us that post 19 May 2014, this outcome was achieved - as was increased sustainability and viability for taxi operator businesses. The shift on 1 July 2014 to the 45/55 split has only marginally enhanced the level of remuneration for the driver beyond the May 19 2014 level. At the same time it has had a clearly catastrophic effect on the viability of taxi operator businesses. If the welfare of taxi drivers, and their level of remuneration, were a key consideration for the Government in accepting the Inquiry's recommendation regarding a mandated fare box split, it appears clear that the recommendation has failed in its attempt. This is because, in simple terms, an integral component of taxi driver welfare has to be the availability of taxis to bail/rent from viable taxi operators.

Even if there is a preference for the owner-driver operating model (as seems to be the case) , the current policy settings are inherently contradictory in that they create significant incentives to be a bailee driver (by removing next to all responsibilities of drivers) on the one hand, but few rewards for the additional responsibilities and costs of operating.

In the view of the VTA it is a shame that for a short period of time between 19 May and June 30, a sensible policy context prevailed where our industry was sustainable both from the perspective of those that invest their capital (the operator), and those that wish to bail a taxi for a living (the driver). Returning the industry to this context should not be seen as an insurmountable challenge.

Aside from the most practical solution of returning to a mandated fare box split of 50/50, the VTA is more than open to a sensible discussion with Government about how the business model can be regulated to ensure the sustainability of both taxi operator businesses and taxi drivers.