Jake's View

How Hong Kong’s taxi owners would ensure it’s them, not the drivers, that benefit from a fare increase

With their disproportionate election committee votes, taxi owners are well placed to get their 18 per cent fare increase and pocket the difference themselves

PUBLISHED : Monday, 12 December, 2016, 7:07pm
UPDATED : Monday, 12 December, 2016, 11:08pm

Taxi drivers want up to 18pc rise in fares

SCMP headline, December 11

Let’s start with a little electoral politics. Functional constituencies are not a very representative form of government but some still have a relatively large number of voters.

For instance, there are 88,150 voters in the education constituency for one seat in the Legislative Council. If you are a teacher you get a vote for that seat. In accountancy there are 37,423 voters. If you have a bean counter’s ticket you get a vote for the accountants’ seat.

Then we have the transport constituency. It has only 208 voters for its one seat in the Legislative Council and 40 of those votes are held by taxi owning companies, the single biggest block in the constituency. Taxi drivers, however, get no votes. They are all held by corporates.

Hong Kong taxi groups call for 18pc fare hikes as inflation, operating costs increase

What is more, this transport constituency, dominated by taxi owners and the like-minded owners of minibuses (23 votes), collectively have 18 votes on the election committee for chief executive, giving them proportionately 254 times as much voting power as teachers have.

Taxi owners thus swing a lot of weight in political matters, and what better time to swing it than when you can really swing it with a thump, such as in the run-up to an election for chief executive in which, for the first time, the outcome is not immediately pre-ordained.

Now let’s turn to taxi politics. The price of an LPG Toyota Comfort cab from Crown Motors is at present HK$237,900. The price of a taxi licence is at present about HK$6.7 million, more than 28 times as much, and the licence gives you nothing except to right to operate that cab. Why this huge premium?

In a nutshell, because our government made a mess of things. At the behest of taxi owners it capped licences at 18,140 some 20 years ago, and it has fixed fares at a level that would earn taxi drivers more than double a normal working class income...if they owned their own cabs.

But of course they don’t. Only a handful of drivers are owners. The rest of the fleet has now come to be owned by taxi licence speculators who charge their drivers about HK$400 a shift.

This rental income can then be capitalised just as interest income on a bond is capitalised to arrive at an overall value for that bond. Given prevailing low interest rates, the market says this taxi rental income now has a discounted net present value of HK$6.7 million.

I haven’t the space to explain it in more detail. This is a financial column. I assume that you see how it works.

Now let us make another assumption. Let us assume that we agree to an 18 per cent hike in taxis fares because we sympathise with underpaid drivers. Do the drivers get this money?

Simple answer: No. Drivers are paid only as much as it takes to get enough drivers for 18,140 taxis. If they then take in more money in fares, the shift rental charge goes up a few more notches from HK$400 until they are again paid only as much as it takes to get driver bums on driver seats, and no more.

It is the taxi owners who are pitching for higher fares. Take note that the two taxi people our report quoted as wanting an increase represent Chungshing Taxi and the Anti-Taxi Franchises Concern Group, both of them associations of taxi owners, not taxi drivers.

I think what bothers them is that interest rates appear headed up at the moment, which spells trouble for the taxi licence speculation market as much as for the bond market it resembles. Taxi licence prices could go down.

But while taxi owners cannot do much about rising interest rates, they do see one way in which they might keep licence prices up. It is to raise the shift fee they charge drivers, which they will be able to do if they can get an 18 per cent increase in fares.

Which they are favourably placed to demand just now as they control a disproportionate number of election committee votes. Get it?