I1 From the Field 11

National Competition Policy and the Australian Taxi Industry

Robert Gunning Consultant to the Australian Taxi Industry Association

This article outlines the Australian Taxi Industry Association’s (ATIA) perspective on the development of the National Competition Policy (NCP). The ATIA has been actively involved in the issue since the establishment of the Hilmer Inquiry into National Competition Policy in 1992.

The Australian taxi industry is regulated by state and territory governments. Taxi industry regulations are designed to facilitate the provision of high-quality and comprehensive taxi services to the community and disadvantaged groups. One element of this regulatory structure involves the sale, or lease, of taxi plates by state and territory governments as a revenue-raising measure.

This revenue-raising by governments produces two different effects. On the one hand taxi plate owners having purchased taxi plates from the government (or leased) have an interest in the value of the plate, as well as in continuing to provide quality services. On the other hand some observers see taxi plate values as inherently unacceptable and needing to be reduced, or abolished, by allowing unrestricted access to the taxi industry.

These competing views have provided much of the impetus for the debate associated with the taxi industry and the NCP. The industry believes that NCP has the potential to impact adversely on taxi ‘markets’ and consumer interests.

Policy Outcomes When the Hilmer National Competition Review was announced in 1992 the ATIA recognised the need to involve itself in the inquiry. It did so by making submissions outlining its position and putting its views before government. In essence, the ATIA argued that the community benefits of taxi industry regulations significantly outweigh any costs and that state and territory governments were in the best position to make judgments on whether changes were needed in the existing structure of taxi regulations. While this view was largely accepted by the Hilmer Inquiry, the results of that inquiry have often been confused in public debate with the recommendations of the Industry Commission (IC) in its report on urban transport (1994).

The IC was given a reference to inquire into urban transport at about the same time as the Hilmer Inquiry was commissioned. Although the IC reported well after the Hilmer Inquiry the two inquiries have often been lumped together, particularly in public debates. Without attempting to summarise either inquiry in detail, Hilmer’s principal recommendations affecting the taxi industry were that: 0 the scope of the Trade Practices Act should be

widened to cover all areas of the economy including those areas regulated by state and territory governments; and any area where competition was restricted should be explicitly identified and be subject to review so that legislation restricting competition would only remain where the public benefits outweighed the costs.

By contrast, the IC recommended that ‘open entry (should be introduced) into the taxi industry over a number of years’ (IC 1994: 21).

Nonetheless, when the Council of Australian Governments (COAG) agreed to adopt the National Competition Policy (NCP) package based on the Hilmer Report in 1995, many media reports indicated that the taxi industry would be deregulated and open entry permitted.

Deregulation or Not? The two different trends represented by the Hilmer Inquiry and the IC have placed the Australian taxi industry in an uncertain and ambiguous position. In the first place, the formal intergovernmental

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Auslraliarr Journal of Public Adtttitrislralios 55(2): 94-96, Jutre 1996

NCP and the Australian Taxi Industry 95

agreements and legislation implementing the NCP require that:

legislation ... should not restrict competition unless it can be demonstrated that:

a) the benefits of the restriction to the community as a whole outweigh the costs; and

b) the objectives of the legislation can only be achieved by restricting competition (COAG 1995: Clause 5(1)).

Furthermore the NCP requires that: each party will develop a timetable by June 1996 for the review and, as appropriate, reform of all existing legislation that restricts competition by the year 2000 (COAG 1995: Clause 5(3)).

However, as a second step, the NCP package also involves the establishment of the National Competition Council which is charged with reporting on the same matters, subject to review by the states and territories, with the implication that: 1 . the Trade Practices Act may be applied to state

licensing arrangements; and 2. Hilmer competition dividend payments to the

states by the commonwealth may be affected. The net result is that the states are required to review taxi industry regulations as part of NCP, but these state reviews will also be subject to a further review by the National Competition Council. Some commentators have suggested that the council may well take an approach similar to that taken by the IC. Of course, whether this proves to be the case remains to be seen.

For the taxi industry, the net result is that two potentially competing review processes have been established and the ATIA will need to take account of both. While the ATIA has influenced the final outcome of the National Competition Council, it could not be claimed any clear public benefit or public review process has emerged. Rather, the final outcome remains uncertain.

In reality the final position reached by commonwealth, state and territory governments in all of the areas touched by NCP represents a negotiated outcome where many of the potential changes are problematic and, in any event, likely to be introduced over an extended period of time. From a taxi industry perspective, this is hardly satisfactory.

The Steps Along the Way As mentioned earlier, the ATIA recognised from the outset the Hilmer competition policy review had the potential to have major consequences for the taxi industry and the community. Accordingly, the ATIA took every opportunity to make submissions to the Hilmer Inquiry and to follow u p these submissions with briefings for government ministers and parliamentarians while the inquiry was underway and subsequently while the national competition package was being negotiated. The ATIA had a consistent program of monitoring the progress of the Hilmer recommendations at every step along the way.

In summary, the steps taken by the ATIA involved:

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submissions to the Hilmer Inquiry; submissions to government following the finalisation of the Hilmer Report; briefing provided to all key policy-makers including commonwealth ministers, shadow ministers, parliamentarians and policy advisers; parallel briefings for state ministers, shadow ministers, parliamentarians and policy advisers by the state members of the ATIA; and

0 face-to-face meetings with commonwealth ministers, shadow ministers, parliamentary committees, party committees and key advisers.

For the taxi industry, potential policy changes were not assisted by the critical - and in our view poorly based - recommendations by the IC for taxi industry deregulation. These recommendations compounded the difficulties involved in the policy development process and engendered a broader public debate which had little regard for the actual steps involved in NCP.

Taxi Industry Issues The ATIA is convinced that the real issues surrounding regulation of the taxi industry were not fully recognised in the formulation of the NCP - even though they have received recognition from state and territory governments responsible for taxi industry regulations. There is still too little recognition among the policy agencies of the commonwealth government of the need to protect the public interest which has given rise to taxi industry regulations.

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96 Gunning

Fundamentally, taxi markets require regulation (or the implementation of industry accreditation) to ensure that consumers are provided with the appropriate level of service in an environment where consumers typically catch a cab which they may not use again in a reasonable time period. Market failure in an unregulated taxi market arises from the fact that there is little opportunity for a continuous relationship to develop effectively between taxi cab owners and drivers on the one hand and customers on the other.

In addition, most communities also have broader goals which require taxi industry services to be provided on a different basis from that which would emerge in an unregulated market. These different service requirements include ensuring that there is a geographic spread of taxi services, regulating taxi prices, ensuring there is an appropriate spread of taxi service between peak and offpeak demand periods, ensuring that there are services for disadvantaged groups including particularly people with disabilities. For instance, i t is quite common in Australia for taxi cab licences to be issued with the prime purpose of serving people with disabilities, or to ensure that a comprehensive service is provided in peak or remote areas. Similar community goals are found in other comparable countries.

Thus, while 21 cities in the USA deregulated the taxi industry in the 1970s by removing entry controls, 19 of these cities have since re-regulated. The only exceptions involve cities with less than 200,000 people where taxi services are, in effect, regulated by either larger neighbouring cities or by major hotels and tourist destinations within the city which have implemented their own form of quality accreditation.

In addition to addressing these fundamental issues of market failure in unregulated markets, taxi industry entry controls are also used by

Furthermore, taxi operators having bought taxi licences from state or territory governments at market prices could hardly be expected to be content to see the contractual obligations which underpin their licences being abolished without compensation. It is also not often recognised that the ATIA is already subject to the Trade Practices Act.

Conclusion The ATIA is not convinced any good purpose has been served by the impact of the NCP on the taxi industry.

As the representative industry body at the national level, the ATIA is confident that taxi industry regulations can be shown to be in the public interest. The community benefits of taxi industry regulations substantially outweigh the costs.

To some extent it might be argued that the NCP has done little harm, and perhaps some good, by requiring regular review of taxi industry regulations.

However, this argument presupposes the taxi industry regulations have not been reviewed in recent times. This is far from the case. In all states, taxi industry regulations have been reviewed in recent years. They have been adjusted where the benefits of doing so could be shown to exceed the costs.

On balance, then, the NCP could at best be argued to have produced some prospect of elusive benefits while creating real costs of significance for the taxi industry through uncertainty and instability and by media reports of impending deregulation.

In these circumstances, the ATIA sees NCP as having yielded no benefits to the taxi industry or the general community. Rather it has created significant unnecessary costs.

REFERENCES governments- to rake revenue. Across Australia, Over 58 per cent Of 1995. purchased Or leased the current Owner the Competition Principles Agreement,. Common-

taxi plate licences were Council of Australian Governments (COAG)

last five years at prices set by governments through the sale or lease of taxi licences.

Other taxes on the taxi industry geared to taxi licences mean that overall state and territory government revenue from the sale or management of taxi licences currently raises over $33 million per year. All of this would effectively disappear in a deregulated market.

wealth Department of Prime Minister and Cabinet. Industry Commission 1994. Urban Transport, Report

No. 37. AGPS, Canberra.