Victorian taxi reform angers industry, as lower fees signal rush of new businesses

Victoria’s new taxi reforms could result in a flood of new businesses in the long term, as licence fees have been reduced from the current rate of $350,000 to $22,000.

As part of the range of new reforms introduced by Victorian Premier Denis Napthine yesterday, taxi licences will no longer be available for lifetime purchase. Instead, they will effectively be leased each year at a cost of $22,000 in metropolitan areas and indexed at 0.5% below the inflation rate.

Victorian Taxi Association chief executive David Samuel told SmartCompany the change is likely to result in new entrants to the industry, but it’s angered many licence holders which purchased the lifetime licence for up to $500,000.

“In the short term it seems unlikely there will be many new businesses because the changes are being phased in, but in the long term I expect to see changes to existing business and a number of new businesses entering the market.”

“There is a lot of negative feedback around the licensing and this $22,000 reflects a lower rate of return, which has already dropped significantly,” he says.

The industry is concerned with an open entry to the sector, claiming there could be an oversupply of taxis, a decrease in service standards and financial pressures placed on taxi businesses, as the more cabs which are on the road, the fewer passengers there are for drivers.

Samuel says traditionally the licences have been able to be purchased for a lifetime and many licence holders have operated on a business model of leasing their licences at a certain rate as a way of increasing the rate of return.

“The government thinks there is no need for compensation and rather than compensation it’s said it will increase the licence fee by 0.5% below CPI each year. We are sceptical of this and we think there needs to be an economic analysis conducted of this proposal,” he says.

The licence fees in urban areas will be $17,000 for the first year, in large regional areas they will be $11,000 and in country areas they will be $3,400.

Current perpetual licence holders are going to be able to rent their licences out for $25,000 or $26,000 a year, but Samuel says this is below the current industry rate of $27,000.

Launching the reforms yesterday Napthine said the government had opted for indexation rather than the original recommendation of compensation because it believed indexation would sufficiently compensate current licence holders.

“The government did consider those matters but in consultation with the industry the indexation outcome was seen as a much better outcome for existing perpetual licence holders.

“The economists who we’ve consulted suggest that (the indexation rate) will secure the value of perpetual licences,” Napthine said.
In March 2011 an inquiry into the Victorian taxi and car hire industry was announced and in December last year the final report was released with 139 recommendations by Professor Allan Fels.

The Napthine government has accepted almost all of Fels’ recommendations, but in the report he recommended a fixed licence price, which was rejected by the government in favour of indexation.

Other changes to the industry include increasing fares on Friday and Saturday nights, lowering fares at off-peak times and setting a maximum fare. The cost of paying for a cab with eftpos will also be slashed by 50% from 10% to 5% of the fare, taxi drivers will be given a guaranteed 55% of the fare box and new drivers will have to pass a driver knowledge test.

Samuel says the reforms are positive overall, but they have been soured by the issues surrounding the new licencing fees.

“The vast majority of the reforms are supported by the industry and are necessary and overdue. But there are a handful which are a concern and threaten people’s business viability.

“There is some really good stuff in the package, but this has been tempered by some of the reforms which are going to negatively impact upon businesses,” he says.