Part D – Understanding and improving industry performance (PDF ...

Case study
Northern Territory – Deregulation
In 1999, following the National Competition Policy review, the Northern Territory became the first and only
jurisdiction in Australia to remove quantity restrictions on taxi licences.
The approach to deregulation in this instance constituted a licence buy-back and reissue scheme:
• Existing licences were bought back at a price based on the last tendered price of a taxi licence in the particular
area plus CPI – in Darwin the price was $95,000 per licence.
• Licences were then reissued on demand (no quantitative limit) for an annual licence fee – the annual licence
fee in Darwin was $16,000 – with this cost planned to be removed after the costs of ‘compensation’ (that is,
the initial buy-back) were recouped.
However, the annual licence fee has remained and continues to be charged some 13 years after the initial removal
of supply restrictions.
Taxi numbers increased immediately after deregulation, improving taxi availability. However, by the end of 2001
and with the election of a new government, the open entry regime was quickly reversed and a temporary cap
on the number of commercial passenger vehicle licences put in place. The new Northern Territory Government
cited poor returns and poorly trained and motivated drivers as the main reason for this reversal. Interestingly, the
Government also declared that the reversal was needed before specific issues relating to poor quality standards
were addressed. This cap has since been made permanent for Darwin and Alice Springs, with open entry
permitted elsewhere.
While some commentators cite the upheaval following deregulation in the Northern Territory as an argument
against open entry regimes, the somewhat hasty and short-sighted reversal of deregulation in this case may not
have allowed the benefits of deregulation enough time to filter through the system to consumers.
9.3.5. Innovation
Regulation should not inhibit the growth of new
services and innovation. Flexibility in regulating
taxi services post-deregulation is important to
maximising the consumer benefits expected to
arise from competition and efficiency gains resulting
from the removal of licence and fare restrictions.
For example, in terms of fare controls, the OECD
observed that “if price regulation is to be retained care
must be taken to ensure that it does not inhibit the
development of premium services or, on the other
hand, of shared ride arrangements.” 18
New Zealand provides a good example where, after
libealising entry and fare controls, service innovation
flourished, with the introduction of specialised services,
innovative payment systems and advertising. 19
In contrast, deregulation in US cities in the 1970s
and 1980s apparently led to little innovation or the
introduction of price-service combinations in the taxi
industry. This highlights a need to actively focus on and
facilitate competition and innovation in an open market.
18 OECD (2007), Op. Cit., p.43
19 Soon, J. (1999), ‘Taxi!! Reinvigorating competition in the taxi market’,
Issue Analysis, Centre for Independent Studies, NSW, p.7
9.3.6. Making the transition
The experiences of jurisdictions that have liberalised
taxi licences suggest that the design of transitional
arrangements is important.
The inquiry observed that, in many cases, it takes
some time for competition and efficiency outcomes of
liberalisation to be realised. While many jurisdictions
experienced significant periods of unrest in the aftermath
of liberalisation, sometimes resulting in a regulatory
void in cases where deregulation was wide-reaching
and occurred immediately, the long-term results have
generally been positive. This reinforces discussion in the
previous sections about the importance of a supportive
regulatory environment during efforts to deregulate.
The inquiry is also aware that jurisdictions can take
different approaches to the timing of reform, primarily
electing to either adopt an immediate or staged
approach to reform.
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