Why government should not subsidise minibus taxis

Rising petrol costs have amplified calls by taxi associations, the Competition Commission and others for the state to increase subsidies to minibus taxis. The only direct subsidies paid to minibus taxi owners is an allowance for scrapping old taxis. Taxi operators say taxis should be subsidised like buses and trains.

Statistics SA’s 2020 National Household Travel Survey indicates that 60% of households use taxis as their main transport.

The 2020 Travel Survey also shows the most common complaint about public transport was that taxis were too expensive. But there is a strong argument against minibus taxi operators receiving new operating or capital subsidies because they benefit from two implicit but valuable subsidies.

The first is that most do not abide by labour laws. That substantially reduces operating costs. The second is that while taxi associations seem to be de facto cartels, the state does not enforce competition law in the taxi industry. The prices would be lower if laws were enforced.

Statistics SA’s 2019 Quarterly Labour Force Survey data shows 70% of taxi drivers earned less than the national minimum wage of R20 an hour and 75% work more than the legal maximum of 55 hours per week.

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Ignoring labour law substantially cuts the cost of operating taxis. Train and bus companies are formal businesses. They pay employees’ wages determined in bargaining councils and which, at R50 per hour for bus drivers, are two and a half times the national minimum wage.

The Competition Commission’s recent market inquiry into passenger transport acknowledged that taxi associations fixed prices. Yet the commission suggested taxis should receive more subsidies. This failure to apply competition law is an implicit subsidy.

Taxi associations enforce each taxi owner charges the same price and prevent the entry onto routes of non-association members who, in a freer market, would drive down profits and prices. Many taxi owners make large profits. Transport planners, policy makers and taxi representatives ignore or deny this.

They argue there is an “oversupply” of taxis and that taxis operate at very low profit levels and should be subsidised. But subsidising taxi owners who belong to associations that resemble cartels will lead to higher profits for owners, with little benefit to users.

Instead of the state further subsidising taxi owners, policy makers should find ways to enhance competition, reduce violence and enforce regulations.

Andrew Kerr is associate professor at University of Cape Town

This article was republished from The Conversation. Read the original article here