Based on IPART’s Issues Paper - Review of maximum taxi fares and review of annual Sydney taxi licences from July 2014
October 2013
This fact sheet provides a summary of IPART’s Issues Paper for our review of taxi fares across NSW and Sydney taxi licences from July 2014.
Submissions on the issues paper are due by Friday 15 November and we are holding a public hearing on Tuesday 22 October 2013. Our Issues Paper and more details on how to get involved are on our website (www.ipart.nsw.gov.au).
What the review covers
Our review covers taxi fares across NSW and the number of new annual Sydney taxi licences to release, both of which we recommend to Transport for NSW. This is the first year we have looked at both issues together. Fare levels, the number of licences and the income that licence owners receive from leasing out their licence are all interrelated. We will consider the interactions between these during this review.
Considering them at the same time and making a single recommendation to Transport for NSW means that we can focus on combinations of fares and licences and assess them in terms of their outcomes.
What our objectives are
Ultimately we want to make taxi services more affordable for passengers and make entry into the market easier for operators and drivers. But we also need to make sure that what we recommend does not have an unreasonable impact on existing licence owners. There is a balance to be struck between existing licence holders on one hand and benefits for passengers, operators and drivers on the other hand.
In our view, some reduction in licence lease income is needed in order to achieve the review’s objectives. Providing a longer term context for this is important for existing licence owners and future investment in the industry. We propose that a 25% reduction in licence lease income (in real terms) over 5 years is not unreasonable. This amount would support significant benefits for passengers in terms of affordability and/or operators and drivers in terms of ease of entry into the taxi market.
Why we are considering these issues now
Historically the number of taxi licences in Sydney has not kept pace with the growth in Sydney’s population, household and business income, economic activity or tourism numbers. This meant that there were not enough taxis on the road to meet passenger demand. As a result of this scarcity (and not because of their productive capacity), taxi licences became very expensive to buy and lease. High licence costs increased the costs of operating a taxi business, and flowed through to the fares for taxi services. This made taxi travel less affordable for customers while drivers’ incomes remained low.
To address these problems, the Passenger Transport Act 1990 (the Act) was amended in 2009 so that TfNSW was required to decide how many new licences would be released each year.
We have provided advice to Transport for NSW on maximum fares since 2001 but last year was the first time we also provided advice on the number of licences. This allowed us to take a fresh approach last year and consider the interactions between the two issues.
Transport for NSW did not fully accept our recommendations but made some significant steps towards them. Transport for NSW:
- froze fare components at existing levels for 2013/14 across NSW and introduced a peak hiring charge on Friday and Saturday nights in urban area
- issued the first of 280 additional taxis with peak availability licences and 65 additional taxis with unrestricted licences in Sydney.
Our views on key issues for stakeholders
How can we justify reducing licence lease income? What about the people who have invested in taxi plates?
IPART has been charged with balancing positive outcomes for passengers, drivers and operators with the need to avoid unreasonable impacts on existing licence holders. This balancing was explicitly included in the Passenger Transport Act at the time the licensing arrangements for Sydney were reformed in 2009.
Some reduction in licence lease income is needed to deliver the other objectives, including more affordable taxi travel and easier entry into the taxi market. It is our job to ensure that impact is not unreasonable.
As a comparison, reductions in licence lease income resulting from the Victorian taxi industry inquiry are larger than contemplated by IPART. Unrestricted Melbourne licence costs are were set at $22,000 per year (indexed by slightly less than CPI) from July 2013, compared to the $30,000 per year they had been leasing for prior to that.
How could we consider putting fares down when costs are rising?
Even though the costs of providing taxi services go up every year as fuel costs, insurance, maintenance and so on rise, we consider that fares are already high enough to cover those increases in costs.
Instead of customers funding increases in taxi costs though higher fares, the cost increase can be funded by all or some of the following:
- a reduction in the income of licence holders
- cost savings from efficiency gains
- additional revenue from more passengers, as more trips are taken in response to lower prices and underlying demand growth.
Drivers’ pay is already low – won’t putting fares down just mean drivers get even less?
A taxi driver’s income is the difference between the fare revenue received and the expenses paid out. Taxi driver earnings are governed by supply of and demand for taxi drivers. Except in the very short term, fare increases do not benefit drivers. Nor do we expect fare reductions to reduce drivers’ incomes. The biggest expense for most taxi drivers is the cost of ‘bailing out’ a taxi and we expect that cost to be lower under lower fares and/or as more licences become available.
Won’t higher fares and fewer taxis fix the problems faced by the industry?
In our view, the taxi industry will only be a viable, sustainable industry if it meets the needs of passengers.
Steadily increasing fares over time has led to reports of declining taxi use and falling productivity. Increasing fares has failed to improve driver incomes but increased licence values (and lease costs). Competition from other modes of transport, especially hire cars, is now often raised with us as a cause of concern to taxi industry participants.
Better outcomes for passengers, including more taxis, lower waiting times and more affordable fares are in the interests of the taxi industry in the longer term and with as noted above, fares are high enough to cover all the relevant economic costs.
Where to get more information
We have set out a proposed approach and discussion of the fare/licence options in detail in our Issues Paper.
We have also put together a background paper on the structure of the taxi industry including key statistics.
Both of these publications are available from our website.