I don’t know what disappointed me most about flying to Melbourne. Was it the customary hostility of the Jetstar staff? The spearmint chewing gum embedded in my seat? The textureless, overpriced pseudo-food? No. It was the 6am taxi to the airport that cost more than the 1000km airfare.
I was suitably incredulous when Stan the driver stopped the meter. Naturally, he added a host of imaginary surcharges and the pricing table stuck to the window was no comfort – fares had risen again less than two months prior. And yet Stan would take home barely $10 of the $100 I mournfully handed over.
It was partly to rectify this consumer and driver injustice that the NSW Independent Pricing and Regulatory Tribunal (IPART) recently concluded its study of the state’s taxi industry. It made recommendations to reduce overall fares by 1% in the hopes of boosting taxi usage and reducing driver costs. The study found that for most of the past decade, taxi fares have risen faster than the Consumer Price Index.
Our exceptionally high fares can be attributed to the structure of the industry, which thrives on a system of corporate feudalism, or bailment. A large proportion of taxi drivers pay either 45-50% of their takings or a fixed ‘pay-in’ to the car owners. Those owners pay an annual tithe of up to $30 000 to the holders of the licence plates. Many of these plates remain transferable chattel worth more than $200 000. And operators are required by law to belong to a network, with its own attendant fees, like the ubiquitous Taxis Combined. In return, these networks promise operators credibility and promise users safety.
Most drivers choose to pay the car owners with the fixed pay-in, which varies from up to $172 for a five-hour day shift to $262 for a Saturday night shift. If the driver fails to earn more than this amount in fares, they do not earn a wage. As Stan explained, Saturday night shifts are dangerous at best, ferrying the drunk and disorderly, or rainy and quiet, and thus unprofitable at worst.
In essence, taxi drivers earn an average of $11 per hour. They are not in a position to negotiate for higher wages, with only a loose Australian Taxi Drivers’ Association to represent their interests. Against them lies the NSW Taxi Council. It describes itself as “the peak body of the taxi industry” but only represents taxi owners and networks. Like other industry lobbies, it is politically active. Electoral Commission records show that prior to the 2011 state election, for instance, the Council donated more than $20 000 each annually to the Labor and Liberal parties. Reg Kermode, CEO of Cabcharge, likewise attended Barry O’Farrell’s wedding.
At the Council’s instigation, the state government has ignored most of the IPART proposals, including ones that encourage taxi drivers to take short distance fares, whilst lowering the cost of long distance trips. In response, the O’Farrell government implemented another $2.50 surcharge for Friday and Saturday night trips but froze other rates for a year from August. The surcharge is ostensibly to ensure higher driver turnout during those peak periods.
But Sydney commuters are not concerned by the availability of taxis. Taxis are increasingly unaffordable, and it’s hurting the industry. A lack of competition among taxi networks contributes to the problem. The 12 Sydney networks are dominated by Cabcharge, Premier and Legion, whichare inscrutably connected, owning the others’ shares, and sharing executives. Cabcharge has been investigated by the Australian Competition and Consumer Commission for uncompetitive behaviour, and has done its utmost to marginalise new taxi providers and booking services like Uber, Ingogo and GoCatch, which would otherwise go some way to cracking the oligopoly.
Yet the problem is more basic. The industry is built upon what IPART politely refers to as extraneous economic rent. Licence costs and network fees are transmitted to exasperated consumers who must foot increasingly unrealistic fares. Those licence plates are the hereditary playthings of wealthy middle men, and they pose a significant barrier to the entry of fresh competition into the market.