I gave a talk to (in the main) taxi licence holders at the Dallas Brookes Hall this afternoon. It drew on my recent blog post – indeed I was introduced as the author of then post. It was a tricky situation for me as I do support reform of the taxi industry but I am sympathetic to the plight of licence holders. In the end I think that my position is the right one and a stance that is supported by many in the industry. My guess is that the Taxi Industry Inquiry will not succeed directly in slashing licence values but that some of the reforms on hire cars, pre-booked taxis and altering assignment rates and the operating costs attributable to owners will expropriate taxi licence wealth by stealth. This would be an efficiency reform financed by unfairness.
To those who are gung-ho about such reforms I would simply ask how would you feel if the government confiscated half of your superannuation savings? It is exactly analogous because many of the 1000 people at this meeting are holding licences as assets for their retirement. I met a couple of them and the fear is real.
An interesting feature of current licence values is their scale – around $470,000. This yields an annual income of around $30,000 from which a whole range of costs must be met. Given that inquiries over the years have consistently mooted the possibility of deregulation a reasonable question is “where is the risk premium here?” – returns just seem far too low given the prospect of capital losses from expropriation. The only plausible answer is that licence purchasers assume there is zero probability of uncompensated reforms getting up. Perhaps some hold out hopes for a substantial payout. (912)
Some of my friends were there and they enjoyed your talk. One said you were the best one.
He also claims your views were not even heard by ‘the evil’ Alan Fels. (apparently someone there continuously referred to him as that!)
Which gets me thinking about what you may think of him.
On the one hand, he is trying to reform the taxi industry, yet on the other hand he is supposed to be stopping businesses from using the Carbon Tax as an excuse to increase prices.
These people have all their super tied up in one very risky asset? Really? Why am I reminded about the proverb about fools and their money?
“On the one hand, [Fels] is trying to reform the taxi industry, yet on the other hand he is supposed to be stopping businesses from using the Carbon Tax as an excuse to increase prices.”
This is a non sequitur. In any case Fels left the ACCC nine years ago, so he has not got anything to do with stopping businesses from using the carbon tax as excuse to increase prices.
Savvas, I certainly do not agree with the demonisation of Allen Fels. Most of his suggested reforms I support but not the proposal to slash licence values without compensation.
Uncle Milton, I met some very wealthy licence holders and many not so wealthy – typically drivers who had borrowed heavily to buy 1 or 2 licences. The latter often are using licences and income derived from licences to fund their retirement.
“typically drivers who had borrowed heavily to buy 1 or 2 licences.”
Would you be more sympathetic if they had borrowed heavily to fund speculative property development? It’s pretty much the same thing.
Uncle Milton- being someone who has seen the Taxi Industry from all facets I disagree with you on this.. Professor Fels is short sighted in his views and not only will us so called wealthy owners be decimated ( after working hard for most of our lives) but the general public will be worse off.. Imagine if you will 15,000 plus cabs choking the life out of city streets, drivers fighting each other for work, cab standards dropping, frequent touting ( much like occurs outside restaurants in certain streets) and all to provide weekend customers a service they deserve, why not open up public transport to 24 hours on Friday nights and saturday night to alleviate the “crush”.
In terms of property Milton we dont have someone saying to us- hey you must only charge x amount and not more to rent out the property nor advise that property prices should be artificially deflated to less than half ( and stuff the property owners to boot).
“Imagine if you will 15,000 plus cabs”
Do you mean that I’d be able to walk out of my door and find a cheap taxi and not have to own a car anymore, just like Hong Kong and many other places in Asia? Sounds great to me — I wouldn’t have to drive, I’d save money and the drivers of the cabs would get more business.
no conrad- due to the increased costs you wouldnt be able to afford to get into one as rising costs would need to be met.. the NZ experiment is a prime example of this- deregulation happened there 20 years ago and lead to 3 times the amount of cabs- less cabs = less work which then equates to increased fares- do yourself a favour and check into it..
John,
I don’t actually think there too many arguments over whether or not the current licencing system is bad for anyone except the licenses holders (it is). Obviously, if people don’t have to pay 500K just to drive a taxi, then prices are going to be cheaper for people that want to actually take them, no matter what you want to say, and this will result in more business. The main issue is how to best compensate the people with licenses. Obviously opinions range from next zero (Uncle Milton) to something more substantial (HCs position).
As it happens, I’ve been to many places with this sort of restriction, and the more restricted it is, the worse it is. There is good example in France, where different cities have different rules. In the cities like Marseille where there are really crazy rules (worse than here), almost no-one takes taxis because they are ridiculously expensive, and so most of the drivers just seem to sit around all day.
John,
I should also say that one of the interesting things about taxi prices being so high now is that there are now many unofficial businesses doing the same thing. I just went through Melbourne airport a few weeks ago, and for the umpteenth year in a row, there are now touts offering to take me home much more cheaply (there are now signs telling you not to take them, so obviously it’s not just me). I imagine without the expense caused by the license fee, these guys would disappear.
“Imagine if you will 15,000 plus cabs choking the life out of city streets, drivers fighting each other for work”
Prices would be fall as in every other market where you get more sellers trying to win the business of the buyers.
The notion that prices would rise with more supply is a joke. Apart from being illogical, the fact that existing licence holders are opposing reforms proves that the opposite is true. Of course prices would fall as would be value of the licences. Of course, the existing licence holders want to stop this from happening. It is in their private interest to resist reform. But the public interest should trump their private interests.
I think comparing taxi licenses with housing investment (as a risky asset class) is bunkum.
The risk in housing is the market. The risk with taxis is the government intervening to intentionally reduce private individual wealth.
In an environment with relative policy stability, the license risk is minimal (to none) for an investor choice. And, you’re generally talking about low wealth individuals’ superannuation style savings.
Reform by all means. And fast. But compensation must be a mandatory condition.