Taxi Licenses are Economic Rent

by on December 11, 2012

Tags: , ,


11 December 2012

Charging Victorian taxi license holders a stiff annual fee as Prof Allan Fels proposes should be welcomed by every citizen and immediately enacted by government, says Prosper Australia.

“TaxiLink director Harry Katsianabis manages 160 taxi licenses worth around $80 million. He could spend $79,999,999 on lobbyists and public relations defending his businesses’ economic interests and still be ahead – provided he successfully defeated Professor Fels’ reforms,” David Collyer Campaign Manager Prosper Australia said today.

“While there are many small players holding one or two licenses, this is not a cottage industry.

“Taxi licenses are pure economic rent, capitalized. This revenue – around $100 million a year – properly belongs to government, which could then reduce other taxes or improve services.

Licenses are valuable because of the large margin between costs and taxi income. That gap comes about because government sets fares and rations taxi licenses, conferring monopoly benefits on holders.

Currently, taxi licenses are issued in perpetuity, like a land title. Many were offered years ago for a nominal charge. Time and Victoria’s growth has transformed them into valuable properties.

“The Victorian Taxi Industry Inquiry makes many useful industry recommendations. We regard government capture of the economic rents it created as the single most important of these. Victoria’s failure to use this non-behavior distorting revenue source obliges it to impose other damaging taxes on wages and business.

“Moving tax bases to economic rents is the great fiscal reform that would transform Australia. Citizens have a right to expect government to tax fairly and equitably. Taxi industry reform is simply one example of what this nation requires.

*Amended at 2130 on 11 December to reflect the fact that Mr Katsianabis manages not owns 160 licenses.

Media comment: David Collyer 0413 248 193

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise and capture the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.

14 Comments

  1. Yendis11-12-2012

    This really is not seeing the wood for the trees. Taxi licenses are a government granted monopoly (as are all monopolies). Remove the privilege and allow all to enter the market place provided public safety concerns are catered for.

    All this talk of “economic rent” is so much codswallop. The excessive “value” of the Taxi licenses are purely the result of deliberate government restriction of the market place. The answer is to remove the privilege, not manipulate a discredited tax system and cause even greater confusion.

  2. David Collyer11-12-2012

    Sorry, Yendis, but this really is sound economics and sound fiscal financing. Government DOES regulate fares, standards and taxi numbers for the common good. Their intervention creates ‘economic rents’ and removing the privilege, as you put it, is by charging an annual fee. This chops at the market capitalization of licenses, built up by previous government inaction. Our tax system is discredited. So let’s migrate tax to harmless and sustainable bases like monopoly rights.

  3. Yendis11-12-2012

    And this is called Geoism? What a sad point of view. Not even remotely like what Henry George proposed. Suggest you all go back to school. That is if you ever went!

  4. David Collyer11-12-2012

    Dear Yendis, What don’t you like about this? Tell me. I’m curious.

  5. Yendis12-12-2012

    Suggest you read Progress & Poverty. Economic rent is a naturally occurring value that attaches to land because of the activity of human beings.

    The “value” of a Taxi License occurs because the government, by force of “Law,” restricts who can operate the service. That is they violate the free market place. Such a value is not economic rent. It is the cost, to users, of privilege given to a select few to run Taxis. Remove the privilege and the “value” of a license would evaporate. The perceived problems with Taxis all occur around the lack of these vehicles. The answer is to open the market place, to remove the privilege of a “Taxi License” and allow anyone who wishes to operate such a service to do so. This does not restrict law regarding public safety etc. And even the Kennet yellow requirement would not interfere with the free market.

    Removing the privilege of land ownership will not destroy the economic rent of land. Whilst the two matters may appear similar they are vastly different in origin and even cursory examination would reveal that difference.

  6. Matt12-12-2012

    These sorts of restrictions are being addressed through new ventures. For example a US based startup Uber.com has just started service here in Sydney. Great service at great rates, in clean cars driven by friendly drivers. I would expect that this service would be available in Melbourne sooner rather than later.

  7. Bryan Kavanagh12-12-2012

    For freedom’s sake–the only end–I would have thought we should want to get rid of ALL private capture of government-endowed privileges, otherwise known as economic rents, Yendis? No? Only freedom from land prices and taxation? Whilst that would be an excellent start, it would be a pity if it were to end there.

    I expect the resistance of taxi licence-owners to Alan Fels’ ideas will be equal in their outrage as the miners to Ken Henry recommendation they should pay the rent – although he unfortunately called it a super-profit tax. Names can and do obsuscate at times, but taxi privileges are still a rent, if not a land rent.

    If Fels can get the Baillieu government’s support for taxi reform, it might make the case for public capture of land rent that much easier, too.

  8. Watts12-12-2012

    I fail to see Bryan’s answers being relevant to the fact, but merely blind siding the argument. Yendis pointed out the lack of Taxis’ and Prof. Fells confirms this morning saying at least 400 taxis’ are needed.

  9. Bryan Kavanagh13-12-2012

    Is this any more relevant then, Watts? If those who hold taxi licenses paid their full rent into the public coffers for the privilege of holding them, there would be nothing left to be capitalised into the gigantic private premiums for which taxi licenses currently change hands. (Unfortunately, that’s the real taxi business at the moment.) We’d also gain a well run taxi system.

    The parallels between taxi license premiums and poor quality taxi systems and privatised land rents and collapsing economies–both for failing to capture their respective rents–should be obvious to any alert mind.

  10. Yendis13-12-2012

    Bryan Kavanagh you deliberately obfuscate the subject. The “licenses” are government granted monopolies. They are wrong. Such monopolies should not exist. We should allow anyone who wants to run such a service to do so, provided they satisfy public safety. That would ensure a free market.
    And that is exactly what I said in my first response to this article, and which you chose to ignore and obfuscate over the issue.

    The objective is to allow the free market to operate. Your answer is to allow the monopoly and use it to raise some revenue. You would have the continued and constant opposition of the taxi license owners (who are they by the way?) whilst you allowed them to retain one iota of the monopoly price.

    The answer is to remove the monopoly.

  11. Pragmatist13-12-2012

    Collyer and Yendis are proposing different viable solutions to the same problem. Removing the monopoly would benefit the population by presumably providing more taxis at lower fares. It would also potentially improve the lot of drivers who may be able to afford to run their own cars and keep the profit themselves rather than working for the pittance they currently get paid by licence holders. It would also completely avoid the issue of setting the proposed tax.

    Then again, there may be sound reasons to restrict the number of licences. Conditions of coverage area/time attached to the licences might be one. This would avoid the logical free market consequence of some areas having no taxi service at all due to lack of economic feasibility. It may simply be that the potential tax revenue is sufficient to justify the restriction (although I doubt this one would withstand scrutiny) If, on balance, it is in the community interest to restrict licences then the economic rent generated by that monopoly should be collected by the government.

    In both cases, the benefit would flow to the community rather than lining private pockets as is the case for the current system.

  12. John14-12-2012

    Some points:

    1. The streets and roads are common property. If someone uses the streets to make money they pay us – hence a license.

    2. There should be no restrictions on the number of licenses issued. The free-market is then in action.

    3. Issue licenses on an annual basis to anyone who meets the criteria. The free-market is then in action and monopolies removed. Restricting the number is like having a 1000 trained and qualified plumbers but the government only allows 200 of them to work.

    4. Government set fare rates by a meter. In effect this curtails the free-market. Hence license owners want some sort of privilege to compensate.

  13. rino parrella06-03-2013

    yours are a bunch of socialist and communists!!!, fells is trying to steal hard working australian wealth ,with out compansation, and the same goes with your land tax , your idears are nazi

  14. David Collyer06-03-2013

    Thank you, Rino, I am not sure how tax reformers can be Socialists, Communists and Nazis all at the same time. The high value of taxi licenses has come about because they were poorly designed. The ‘wealth’ you write of is unearned economic rent – a deadweight cost to the economy. So the Baillieu government is changing the rules. Governments must do this from time to time. They should have acted years ago, before the sale price of licenses soared in a speculative frenzy.

    The new licences will mean lower taxes or better public services for all Victorians. The holders of licenses may feel injured by this change, but any professional adviser would have warned of the serious risks in government licenses.

Leave a Reply

*
*

http://prosper.org.au/2012/12/11/taxi-licenses-are-economic-rent/