Australian State Government Bails Out Owners of Taxi Licenses After Uber Destroys Their Value

By John McGregor, a translator and political violence researcher

The various predatory tactics undertaken by Uber, as well as its fundamental economic problems, have been well documented by Hubert Horan. In the Australian state of NSW, the government has responded to the disruption so loved by the tech industry by paying taxi drivers compensation for the lost value on their taxi licenses.

When Uber first began to operate in Australia, it did so illegally. Its rideshare service drivers were breaking the law and risking large fines for a couple of years in New South Wales before the government introduced new legislation to cover all taxis, hire cares, and ridesharing in 2016. As with much of the rest of the world, documentation of this plan to break the law I order to break the market was revealed in the Uber files.

By worming its way into the Australian market, Uber collapsed the price of local taxi licenses. In October 2012, the year Uber first entered Australia, a NSW taxi license was worth about AUD 400,000. Right now, a licence is worth somewhere around AUD 100,000.

With nearly 6,700 cab licenses in NSW, this represents a combined loss in value of about AUD 2 billion. This is of course a catastrophic loss for the 4-5,000 taxi license owners in the state, with the shareholders of Uber reaping the benefits of this loss.

When the NSW government decided to capitulate to Uber and legalize its operations in the state, the decline in value of licenses was highly predictable. In order to temper the outrage amongst cab drivers, the NSW promised at the time to introduce a compensation scheme.

Under the euphemism of an “industry adjustment package”, the government promised to distribute AUD 250 million to taxi license owners as compensation to soften the blow to the value of their licenses (which they would retain).

A Passenger Service Levy of AUD 1 was introduced in February 2018 on all “point to point” transport (taxis, hire cars, and rideshares) trips. Prior to recent changes, the website for Transport for NSW reported that:

The levy will be in place for no more than five years, or until it raises the full amount required to fund the industry adjustment assistance package – whichever comes first.

As noted, the figure to be raised was AUD 250 million, which, as of June 2022, has in fact been raised (despite the effects of Covid-19). Despite this, the PSL was initially extended to 2027 and on Wednesday was extended until 2029.

Alongside this extension, the size of the compensation has ballooned. The current Liberal NSW Treasurer Matt Kean announced that AUD 145 million has already been paid out and a further AUD 500 million will be disbursed.

At the time that the original decision to allow Uber to operate was taken, then Liberal Premier Mike Baird attempted to explain why these small businessmen in particular needed to be bailed out:

The thing that has made the taxi/ride-share situation difficult to manage is that, unlike other businesses facing disruption (say, video stores facing disruption from Netflix) the Government has sold and regulated taxi licence plates and has a responsibility to offer some protection for the mums and dads and investors who own these plates.

Despite claiming that the government had a responsibility to offer protection to an industry it regulated, Baird failed to conclude that the problem lay with his government’s failure to enforce the laws against Uber’s illegal operations (but to instead legalize its predatory operations).

Under the current Liberal Perrottet government, the expanded compensation packages will now offer existing Sydney taxi license holders AUD 100,000 for each license, up to a maximum of six; outside Sydney, the payment per license reaches AUD 130,000, with no maximum limit on the number of licenses.

In conjunction with this increase in the “industry adjustment package”, the government announced plans to completely deregulate the point to point industry. The Treasurer claimed that this deregulation will “create a level playing field across the sector, freeing the taxi industry to better compete, while driving improved and more innovative services for customers”. It will of course radically further erode the value of taxi licenses in NSW.

To justify why the payments were higher and uncapped in regional areas, the government press release said:

“Minister for Regional Transport and Roads Sam Farraway said the taxi industry is vitally important in regional areas, where ride share services simply aren’t available like they are in the city.

This financial assistance package will help the regional taxi industry move forward and build on its vital role in providing transport services across regional NSW,” Mr Farraway said.

It’s difficult to see how these two aims can be reconciled. Rideshare services are already allowed to operate in regional areas but, as Farraway notes, they haven’t expanded into this market. This is largely because their model doesn’t work well in regional areas. The deregulation of taxi licenses could well bring an increase in taxi drivers to regional areas but these new drivers would obviously not get the financial assistance that is meant to “help the regional taxi industry move forward”. More likely a removal in the divide between regional and Sydney taxi licenses will see taxi numbers increase in the cities at the expense of the regions as metropolitan licenses already make up nearly 80% of taxis in NSW.

Instead the increased industry adjustment package is just the next phase in a Liberal government plan to direct money towards their small business voter base while also enacting the deregulation plans of their corporate paymasters. The end result of this dual allegiance is that the Australian consumer is forced to pay up so that the Liberal party can keep the peace. No matter what form of point to point travel they choose, NSW consumers will be forced to contribute to bailing out a small subset of drivers, established taxi license holders, whose investments have failed in the face of aggressive American capital and NSW government capture by corporate interests.

The NSW government has already grappled with multiple strikes by railway workers in recent weeks, and continues to face more, including a plan to turn off ticket machines that is projected to cost AUD 1.5-2 million per day if it goes ahead. At the heart of these disputes is a plan by the NSW government to run a new set of vehicles as driver only trains, that is without a guard on board. Despite this, the NSW government has opted against directing funds towards public transport infrastructure or wages, and instead towards the last generation of regulated taxi drivers in NSW. No explanation has been provided by the government as to why it should offer protection to the 4-5,000 taxi license owners but not the over 350 “mums and dads” who work as guards on intercity trains.

In the face of Uber’s typical illegal market entry strategy, the NSW government, like many others, neglected to uphold the law and eventually folded, with catastrophic effects for the local taxi industry. Unlike other governments, once Uber had devoured AUD 2 billion in value in the local taxi industry, increasing its share price at the expense of NSW taxi owners, the NSW government decided that NSW consumers should pay that price, no matter what form of point to point transport they choose. Having paid to bail out taxi owners, NSW consumers will still be stuck with an entirely deregulated point to point market left to the mercy of the same forces that caused the collapse of the former regulated taxi industry.

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10 comments

  1. Matthew G. Saroff

    The business model of tech these days consists of:

    *Monetizing the commons.
    *Breaking the law.
    *Evading regulations.
    *Screwing consumers
    *Monopoly rents.
    *Ponzi schemes presented as “Unicorns”.

    It’s not a business it’s a criminal enterprise.

    The sooner that senior executives are frog-marched out of their offices in handcuffs, the better.

    Reply
  2. lyman alpha blob

    Some bailout, with the recipients receiving far less than what the value of the medallions was before allowing Uber to operate illegally. Sounds like the bailout is only giving current market value to the mums and dads, ie mark-to-market.

    Contrast that with the terms the bankers got after the meltdown in 2008. If I recall correctly, there was a great wailing and gnashing of teeth when mark-to-market was proposed then, and the bankers managed to have their worthless assets valued at 100% of the original face value for bailout purposes. Funny, that.

    Reply
    1. tegnost

      ahhh, mark to market,those were the days, when george the 2 was still considered a bad guy…

      https://www.americanprogress.org/article/keep-marking-to-market/

      FTA…On the one hand, the banks and their allies argue that the markets aren’t currently functioning because they are effectively illiquid except for fire sales by distressed companies. On the other hand, supporters of fair-value accounting contend that the market is roughly pricing these assets correctly, and that the markets are illiquid only because the banks refuse to sell these assets at low enough prices to attract demand.

      We in the USA are not in any remote sense a “capitalist” country.

      Reply
  3. The Rev Kev

    This has been the way that it has been done for several countries. Uber moves in and starts operations whose whole business plan actually breaks the laws. Instead of sending in the cops to bust the place after a judge has written the order, nothing is done for weeks, months and then years. And by the time that something has been done, it is far too late for the taxi industry. It is broken. On the international scene, NSW is small fry but I cannot help but think that Uber has friends in the right places internationally who let it be known throughout many countries to let Uber do this – with the appropriate donations being made to the right people in each country. But a country that does not enforce its laws, has no laws.

    Reply
    1. notabanker

      Yup, Uber was banned in London when I lived there in 15/16. Now the Thames Clipper is the Uber Clipper. But hey, no payola involved here I’m sure. /s

      Reply
  4. KevDS

    Australian government sold the taxi licenses and regulated the industry. One might look at that as protecting the industry from competition for some period of time, thus accruing value to the licensees. That accrued value should be deducted from the compensatory payments being made by NSW.

    Reply
  5. Skip Intro

    This is of course a catastrophic loss for the 4-5,000 taxi license owners in the state, with the shareholders of Uber reaping the benefits of this loss.

    Did shareholders actually get the benefits? I thought they were subsidizing a fundamentally unprofitable business.

    Reply

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