Taxi fares, fairness depend on who's driving policy

PUBLISHED : Wednesday, 24 October, 2007, 12:00am
UPDATED : Wednesday, 24 October, 2007, 12:00am

Cost of a HK cab licence

Red Cab HK$3.48m

SCMP photo factoid, October 23

I'm not going to start looking for taxi licence owners to see if it is true that a red cab taxi licence now costs HK$3.48 million. I'm just going to take that figure as given.

But I hope you will accept that it is the crucial benchmark figure in any deliberations the government now undertakes as to whether taxis should formally be allowed to offer discount fares to passengers and whether the business should be further deregulated.

To see why it is so crucial we shall first make two assumptions. These are that taxi drivers have a turnover of about HK$1,000 a day each and that the owners of taxi licences finance their purchases at the HSBC best lending rate, which is currently 7.5 per cent.

Now haul out your calculator and do some finger exercise. An interest rate of 7.5 per cent on borrowings of HK$3.48 million requires annual interest payments of HK$261,000. Divide this figure by 365 and you get a daily interest payment of HK$715.

Hmmm ... sump'n wrong here, it seems. Can it really be true that more than 71 cents of every dollar that the taxi driver takes from his passengers goes to the bank for financing the purchase of the taxi licence?

We are not talking about the car here, remember. I can't imagine that a Toyota Comfort on a fleet purchase costs more than HK$120,000. The licence is 29 times as much.

I accept that it is probably too high a figure. That HK$3.48 million, for instance, is recent. Only a year or two ago I was hearing figures in the HK$2 million range. Owners may also be thinking of lower return rates than 7.5 per cent, all of which ties in with what I am told is a fee of about HK$600 a shift that rentee drivers pay taxi owners.

Let's call it HK$500 a day in interest payments for a taxi licence, maybe even lower, call it HK$400 if you want.

What stands out, wherever you put the figure within reason, is that this still represents the single largest element of a taxi fare and that the others - car, insurance, fuel, maintenance, driver's income, owners profit - are small in comparison.

And this leads to an obvious question: in the business of carrying you around town by taxi, why should there be a taxi licence cost at all? What did the bank do for you to take half of your fare in interest charges?

There is a simple answer to that question. What the bank did was take advantage of a long standing government policy of regulating the taxi business so tightly that a licence, which should have cost no more than a few hundred dollars at most, now costs HK$3.48 million.

Don't blame the bank. It only did what comes natural to banks. Blame the conceited bureaucrats who dabbled in things they didn't understand and grossly distorted a natural market.

Think of it this way. There are three variables in the taxi market - demand, supply and price. Demand doesn't change much. It goes up and down a little with economic fortunes but it is generally constant, which means that supply or price, or both, should be allowed to move up or down freely to respond to the circumstances of the day.

But they cannot. The number of taxi licences issued is tightly controlled by the bureaucrats and has not gone up at all for more than 12 years. Taxi fares are also under the tight control of the bureaucrats. There is no market here at all, no adjustment mechanism, no pressure valve if the steam builds up.

And it did build up. The bureaucrats set the fares too high for the number of taxis they allowed on the road. A new market then evolved to set a price on the extra value given to taxi licences by this government tinkering with supply and price.

That's the one to which you pay about half of your taxi fare. The winners are the people who got in early, bought the licences cheap and sold them dear. There is a name for such people. We call them speculators. You help them out when you take a taxi.

And now the government is hesitantly proposing a few tentative measures to undo the damage. Taxi drivers are increasingly willing to accept lower fares than shown on the meter. Should we officially legalise this?

Yes, of course we should and much more. Other Asian countries, Singapore most obviously, have moved to a deregulated taxi service and we can do it, too.

We can easily lift the restrictions on the number of taxi licences and allow drivers to set their own fares. All we need to do in the way of regulation is ensure that the taxis are safe vehicles, that the drivers are properly qualified and that the charges are properly displayed. More is not needed.

And if we do it, we will very quickly find that taxi fares come way down, that the drivers are happier, better paid people and that availability of taxis improves.

The only losers will be the taxi speculators and the only pull they have is control of the transport functional constituency seat in Legco.

Oops ... ahhh ... they have that, do they?

Well, that's one reform we'll never see, then.


Send to a friend

To forward this article using your default email client (e.g. Outlook), click here.

Enter multiple addresses separated by commas(,)

This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Enter the characters shown in the image.