Fantastic news about Uber legalisation – now Government needs to resist calls for compensation of taxi industry

It is fantastic news that the Queensland Government will, finally, legalise Uber, as reported in both the Courier-Mail and Brisbane Times this morning, although the option the Government apparently prefers is somewhat less than full deregulation, as taxis will continue to have exclusive access to the rank and hail market. Also, it is reported in the Brisbane Times that:

Many expect the government to follow the example of New South Wales and add a levy to rides undertaken on services such as Uber to help compensate the established industry.

This would be unfortunate, as consumers have been getting ripped off by the taxi industry for decades and the industry arguably does not deserve compensation. The total compensation bill could be very large, certainly at least several tens of millions of dollars, if not $100 million or more, as the introduction of Uber has massively reduced the value of taxi licences by reducing the monopoly profits that were being earned as a result of the supply restriction. Any compensation would, of course, be for political purposes, and would not have an economic justification (although it may be politically necessary in order to get Uber legalised).

In a very popular post, and one that was assigned as a reading in a QUT Economics course, regulatory economics expert and former Productivity Commission economist Rod Bogaards argued strongly that taxi licence owners should not be compensated:

Should Qld taxi plate owners be compensated for the recent disruption to the taxi industry?

Rod noted in his guest post that:

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.

Rod makes some other excellent points in his guest post, which I very much recommend to readers, particularly any in Queensland Treasury who may end up having to fight against excessive compensation for the taxi industry.

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5 Responses to Fantastic news about Uber legalisation – now Government needs to resist calls for compensation of taxi industry

  1. Next prime minister says:

    Compensation should be given to these investors as they invested under the terms of a regulated industry. Should the terms be changed or edited in any way, there should be fair compensation given. You talk about digital disruption, yes but did Kodak give the government money to operate in a closed market NO, did eBay NO. Stop using inappropriate examples and just face the fact that uber drivers are definitely taxi drivers in disguise. I have no affiliation with either side, but I do agree that certain topics ie. Compensation needs to be sorted

    And uber. Needs to be regulated to ensure the safety for all of us .

    Would be great to hear where courier mail got their sources from .

    I think this is all speculative …. As parliament hasn’t even discussed this topic yet.

  2. Jim says:

    Gene

    Agree with this post entirely. There is no economic justification for compensation to the holders of a taxi license. I cannot think of any losses for other equity investment asset classes that has been compensated by Government largely on the back of technology changes.

    I also suspect the losses won’t be anywhere near as high as the taxi industry is claiming due to the exclusive access rights for taxis and the regulatory requirements in ride sharing services (which will actually restrict supply as the regulatory hurdle (essentially a fixed cost) will be pretty high for the casual Uber driver).

    This situation is a real test for the Treasury to provide a robust analysis of the options and the claims for compensation. However, given the string of dubious Government policies and investments over the past 10 years that have presumably been endorsed by Treasury (or Treasury couldn’t formulate a strong case against them), I’m not expecting a sensible outcome on the compensate issue.

    • Jim says:

      Premier announces $100M in compensation to be paid….

      ….no articulation of real reason why apart from being “fair” (despite people loosing money from investments all the time, including non-discretionary investments like compulsory super)…

      ….no idea where the money is coming from, or a recognition of the opportunity cost.

      Looks like Treasury has failed us on this one already. Are they silenced, captured by industry, or not up to their job?

  3. Jack says:

    The problem you have with no compensation is that the licence is not a financial investment as has been used within the media, but is an investment of goodwill to provide a service. furthermore the existing taxi licences ensure that there is a limit in supply to ensure long term financial sustainability within the industry, with all prices set by the government to reflect this.

    By changing the framework of this industry the government has now opened itself up to a world of unknown pain, as the operating conditions attached to these licences have been changed by the government. These licences are not similar to blockbuster stores, but similar to pharmacy licences. You will most likely find that as a result of this the compensation package will have to be significantly higher than observed within the other states.

  4. Glen says:

    The $100 million works out roughly at $20 per person in Qld, a family of five who may never use a taxi in their life will have to cover $100 to the taxi industry, a family of 5 living in a remote town who don’t even have a taxi service will have to cover $100 to the taxi industry, what a farce.

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