Taxi Industry Inquiry

Announcement

The Inquiry was announced on 28 March 2011 by the Premier of Victoria, Ted Baillieu. Mr Baillieu said the Fels Inquiry’s key tasks would include improving disastrously low levels of public confidence, providing better security and support services for drivers and safety for customers, and ensuring drivers were properly trained and knowledgeable.

A media release issued by the Premier announcing the Inquiry reported him as saying -

Industry problems

The key problems with the current Victorian taxi industry listed by Mr Baillieu in his announcement were -

Inquiry scope

Mr Baillieu said in his announcement that Professor Fels would investigate every aspect of the current industry.

The Premier indicated that reforming the Victorian taxi industry would occur in two stages.

In the first stage, the Fels Inquiry will undertake a comprehensive inquiry into the service, safety and competition issues in the Victorian taxi industry.

In the second stage, following Professor Fels’ investigation, a Taxi Services Commission will take over the role of industry regulator, giving it the powers and tools necessary to reform the taxi industry. The Taxi Services Commission will be established as a statutory authority.

The Premier indicated that the current taxi industry regulator, the Victorian Taxi Directorate (VTD), will operate as normal until the Commission is established. During the second stage staff and resources from the VTD will move to the new body as it assumes the ongoing role of regulator.

State of the industry

Newspaper reports on 12 May 2011 reported major problems with the performance of taxi services in Melbourne, the capital of Victoria.

Under a headline "Customer satisfaction with Melbourne's taxi services hits all-time low" the Herald Sun newspaper reported that -

The Age newspaper included a similar report on 13 May 2011.

Setting the scene

The Inquiry issued an issues paper on 12 May 2011 called "Setting the Scene". The paper sets out the background to the Inquiry and raises a number of issues about the performance and state of Victoria's taxi industry. The Inquiry has called for public submissions in response to the paper by 24 June 2011.

Legislative basis

The Victorian Government introduced legislation in early June 2011 to provide support to the Taxi Industry Inquiry including by establishing a statutory authority, the Taxi Services Commission, to give clear organisational separation to the inquiry and to provide the inquiry with sufficient powers to obtain information and report to Government.

Minister's comments

Introducing the Transport Legislation Amendment (Taxi Services Reform and Other Matters) Bill 2011, the Minister for Public Transport, the Hon Terry Mulder MP commented that the measure -

Effect of the legislation

The resultant Act established the Taxi Services Commission as a body corporate under the Transport Integration Act 2010 along with the other central transport bodies. The Act has four parts. Parts 2 and 3 set out the two major stages for the Commission. In its first stage, the Commission is conducting a comprehensive inquiry, i.e. the current Taxi Industry Inquiry. Accordingly, the Act essentially provides the Commission with secure powers and authority to enable it to fulfil its task.

The Minister made a number of comments about the wide scope of the Inquiry -

Magnitude of reform task

Professor Fels has indicated that the reform task in the Victorian taxi industry is substantial. He has warned that the taxi industry required a "very deep review that looks at fundamental questions about how the whole system works.

"It's not just about patching the system up with a little bit of regulation here and modification there," he said. "We need to look at an industry that is not performing well systematically."

Professor Fels said the Inquiry's "Setting the Scene" paper had received more than 140 submissions, with 40 from people with disabilities. He has reported finding disturbingly high rates of poor taxi services across Victoria. He has indicated the Inquiry would consider the cost of a taxi licence - currently about $500,000 - and whether this allowed enough access to the industry.

The industry's regulatory body, the Victorian Taxi Directorate, is also in his sights. "The whole system of regulation is on the agenda and it is also true the Government has legislated already to set up a Taxi Services Commission to come into play after our report," he said. "The VTD at the moment is a separate regulatory body we are reviewing because regulation is part of the set of problems."

Industry reaction

The Victorian Taxi Association (VTA), which represents taxi networks and operators, has indicated "...support for an inquiry but not an inquisition". The Chief Executive of the VTA has commented that -

However, the head of the Taxi Industry Inquiry, Professor Allan Fels observed that -

Current Industry Issues - Cabcharge

One of the controversial features of the taxi industry in Australia is the influence of Cabcharge. The Taxi Industry Inquiry is considering this issue as part of the Taxi Industry Inquiry and the company has been the subject of several observations by Professor Fels since the Inquiry commenced.

The Cabcharge account payment system was established in 1976 to provide a way to pay for taxi fares throughout Australia and participating countries. Cabcharge listed on the Australian Securities Exchange ASX: CAB in December 1999 and is an ASX 200 company. It has since diversified and its key activities now include technology, taxi payments and major acquisitions in the Australian bus industry through ComfortDelGro.

The company's activities are sometimes controversial and it has faced criticism at times from inquiries and regulatory bodies. Cabcharge has been the subject of recent Federal Court proceedings over alleged anti-competitive practices including predatory pricing activities and was subjected to a record high $15 million settlement for these behaviours. The company is also facing criticism of profiteering for the 10% surcharge it imposes on taxi fares paid by card and the matter is currently being investigated by the Reserve Bank of Australia.

Outline

Cabcharge's principal activities include:

Concerns about Cabcharge activities

Cabcharge's commercial activities have been controversial at times and the company has faced regular accusations of excessive charging or profiteering and predatory and anti-competitive practices. The company was recently subject to adverse court proceedings and a major settlement arising from these behaviours.

10% surcharge on taxi fares paid by card

Cabcharge provides EFTPOS terminals, free of charge, to approximately 97% of taxis in Australia. The company incurs the costs associated with transactions including card and other product production, in-taxi processing, administration, fraud protection and investigation, provision of statements and driver education. However, this situation also allows the company to exert substantial and anti-competitive control over most of the Australian taxi industry and to engage in profiteering activity.

Criticism of 10% surcharge

Cabcharge has been criticised for the 10% surcharge it collects on taxi fares paid by credit and debit cards and for the general anti-competitive control it exerts on other industry participants through its control of electronic payments and other areas of the taxi system such as vehicle and related repairs and installation of in-vehicle equipment, insurance, vehicle leasing and training. Criticism has emanated from various sources including the chair of the Taxi Industry Inquiry, Professor Allan Fels, the former head of the Australian Competition & Consumer Commission, and leading card companies. The 10% charge is currently being reviewed by the Reserve Bank of Australia.

Criticism by Professor Allan Fels

Professor Fels recently approached the Reserve Bank of Australia to help lower the 10% surcharge. He has been reported as saying that -

Criticism by major credit operators

Representatives from major credit card operators Visa and MasterCard have also criticised the 10% fee -

Other Criticism

In an article in Victoria's Herald Sun newspaper, John Legge noted that customers in that state paid at least $350 million in taxi fares with banking cards, for which 95% of Victoria's taxis use the Cabcharge system. Legge noted that Australian Competition & Consumer Commission (ACCC) penalised Cabcharge $15 million for abusing its industry dominance.

Reserve Bank action to limit card surcharges in response to the criticism

Reserve Bank (RBA) data is reported as showing that banks charge merchants an average fee of 0.81 per cent to process Visa or MasterCard payments, while the average fee passed on from the merchant to customers is 1.9 per cent for Visa and 1.8 per cent for MasterCard.

The RBA considers that some companies charges are excessive and, as a result, it is drafting new rules to compel offenders to limit their charges to the costs actually incurred by merchants.

Taxi Industry Inquiry findings relating to Cabcharge

The Taxi Industry Inquiry made a number major criticisms of Cabcharge and its activities in its interim report.