Guest post by Rod Bogaards*
Taxi plate owners are understandably concerned over the loss of value in their taxi plates caused by the erosion of the taxi monopoly. Taxi associations have been lobbying state governments for compensation if Uber is legalised.
The NSW Government announced a $250 million industry adjustment assistance package to taxi plate owners. This assistance will be funded by a levy on all point-to-point transport providers, equivalent to $1 per trip for five years. Similarly, the WA Government announced the establishment of a transition assistance package and hardship fund (although the details are still to be finalised).
The Queensland Government has commissioned its own independent review of the taxi industry and will have to decide whether any assistance is justified.
According to the Sydney Morning Herald, some lukewarm support for taxi compensation has come from the architect of the Commonwealth Government’s recent Competition Policy Review, Professor Ian Harper. Conversely, the Economic Regulation Authority in WA says there are three reasons why there is no justification for state government compensation for taxi owners.
- Loss of taxi plate value is due to technological change not a change in government policy
The value of taxi plates has already shrunk irrespective of whether governments legalise Uber. This reduction in value has come about by technological innovation, not a change in government policy. The demise of state taxi monopolies has been brought about by the entry of ride sharing services rather than any government action. Governments are therefore under no obligation to pay compensation.
But, even if it were due to a government policy change, the case for compensation is not clear cut. It is generally accepted that governments should compensate where they reduce or remove physical property rights. However, property rights that are generated solely by government regulation (such as taxi licences) are generally assessed on a case-by-case basis.
- Governments should not compensate taxi owners for poor investment decisions
The purchase of a taxi plate is an investment like any other financial investment. Investors in taxi plates should have been aware of the risks associated with the relatively large investment they made. Similar to other investments, due diligence was required to assess whether the risk-return trade-off of owning a taxi plate was a sound investment. Taxi plate ownership was never a risk-free investment since there was always a risk that technological change or regulatory reform would reshape the taxi industry.
If compensation is paid in such circumstances it would set a very expensive precedent. There are many industries experiencing rapid technological change and many investors in these industries will not recoup their investments.
- It is unfair for consumers/taxpayers to compensate taxi owners
Asking consumers to pay more to taxi plate owners is very difficult to justify on fairness grounds, given they have borne the costs of the taxi monopoly for decades in the form of higher taxi fares and longer waiting times than would have existed in a market without supply restrictions. It would be inequitable for consumers to pay for the privilege of removing the taxi monopoly — they have borne such high costs already. A 2012 study by CIE estimates around $24–40 million is transferred from consumers to the 2,881 taxi licence owners in Queensland each year due to the limit on the number of taxi licences.
It would also be unfair on taxpayers to pay compensation. Transferring money from taxpayers to taxi plate owners would have to be justified on the basis that taxi owners are somehow more deserving than those taxpayers funding the compensation.
According to the OECD, the New Zealand and Irish Governments deregulated the taxi industry without compensating taxi owners.
The Queensland Government’s approach will have important implications for consumers and taxpayers and set a precedent for other regulated industries that are being challenged by technological change.
*Rod Bogaards is an economic consultant and former Director of the Productivity Commission.