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

10.5. Regulation of taxi-cab fares
10.5.1. Nature of existing regulation
Taxi-cab fares are regulated. Fares charged by hire cars
are (by and large) not subject to control and must be
negotiated between operators and passengers.
The legislative basis for fare controls applied to taxis
is section 144A of the Transport (Compliance and
Miscellaneous) Act 1983, which allows for the Minister
for Transport to determine taxi-cab fares. Subdivision 2
of this section requires the Minister to seek advice from
the ESC about fares and to receive a report from the
licensing authority (the VTD) prior to making a decision
about fares. As noted, hire car charges are not regulated
but there are provisions in the Transport (Compliance
and Miscellaneous) Act 1983 for the VTD to ensure that
‘reasonable fares’ are charged.
An important licence condition applied to taxis is that
they charge only the fares and hiring rates approved
by the VTD. These rates are attached as a schedule to
licences. These rates are fixed throughout the whole of
Victoria (with a small difference in the charges in country
areas). No negotiation on these fares is permitted,
with the exception of journeys involving the carriage of
passengers to or from further than 80 kilometres from
the GPO described in the licence. There are also some
exceptions for regular pre-booked journeys.
In practice, there is very little scope for taxi fares to be
negotiated. It seems incongruous to enforce such a
regulation where prices could be negotiated, in some
circumstances, to a lower amount than the fixed fares set
by the Minister.
The ESC has conducted two taxi fare reviews (2005
and 2007/08). The scope of these reviews was largely
restricted to appropriate regulatory methodologies and
issues around creating an efficient fare structure. These
reviews were not designed to assess the case for and
against fare regulation.
10.5.2. Themes raised in submissions
Taxi fares in Victoria have not changed since December
2008. A core theme in the comments and submissions
of many industry participants is the need for a fare rise to
result from the inquiry. For example, VTA argues for:
…the need for an immediate fare increase of at least
12.4%. Victoria is now 30% behind NSW and
Queensland…A new fare setting model and process
is required which considers real operating (including
geographic area variations), and compliance costs,
and movements in these costs, and provides for fair
and reasonable profits at each point in the service
supply chain. 100
A further substantive issue related to fare regulation is
short fare refusal. Although taxis are generally not allowed
to refuse to carry passengers, there is widespread
anecdotal evidence that many taxi drivers are refusing
short fares. It is possible that this behaviour is in part due
to fare controls that are not allowing drivers to recover
their costs of operation for these kinds of trips. The City
of Melbourne comments:
Anecdotal information, feedback from customers and
late night venue owners continues to highlight drivers’
reluctance to accept short trips. 101
A number of submissions to the inquiry also raise issues
about the flexibility of fare controls – in particular, offering
fixed fares (fares that are ‘off the meter’ and do not vary with
distance). These issues are particularly important in areas
where public transport service coverage is poor and taxi
operators are one of the few viable transport options. 102
10.5.3. The benefits from fare controls
The case for regulating fares charged by taxis essentially
relates to the need to address market failures (as
discussed in chapter 7).
The economic case for price regulation is normally based
on the existence of market power. Market power can
derive from underlying market features (such as natural
monopoly) and also from regulated restrictions on the
market’s operation. Generally, the more competitive
a market, the less need there is for price regulation.
There is a large amount of academic literature on the
taxi market and this literature includes contemplation of
various reasons why price regulation of some sort might
still be appropriate in a taxi market.
100 VTA, Op. Cit., p.2
101 City of Melbourne, Op. Cit., p.10
102 These concerns are discussed in greater detail in chapter 21
Understanding industry performance CUSTOMERS FIRST 213