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The Victorian Government today announced a package of regulatory reforms designed to reduce barriers to entry into the taxi and other commercial passenger vehicle market. This will formally allow news types of “ride sharing” operators, such as Uber, to legally provide services.

Key elements of the proposals include:

A support package of around $450 million has also been developed by the Government to assist licence holders with the financial burden of reform and ensure the provision of accessible services into the future. This will be part funded by a $2 per trip levy on all commercial passenger trips – including both taxi and Uber trips.

The proposals by the Victorian Government have followed those in other states of Australia, but are a more far-reaching and holistic attempt to design an optimal regulatory framework for commercial passenger vehicle services. As we argue in our bulletin, Uber regulated?, holistic approaches to the regulation of Uber and its competitors are so promising because they can foster the competition that is needed to get the most out of taxi markets, and reduce the scope of regulation that has so bedevilled taxi markets. By facilitating the introduction of new competitors, and also reducing the barriers to entry for taxi operators, regulation can now properly focus on basic, low cost protections for ensuring driver and passenger safety.

Key elements of the proposals will undoubtedly require further work in the coming years. This includes the $2 levy to be applied to network service providers and taxi operators, and to maintain services that are accessible to all users. Nonetheless, the proposed framework is laudably ambitious. If it can deliver on its promise, the long policy delay in Victoria will have been worth the wait.

Frontier (Asia-Pacific) advised the Victorian Government on the likely impacts of regulatory changes using economic modelling of the Melbourne taxi market. We have discussed the regulation of the “sharing economy” and Uber in the following bulletins, Uber regulated? and Levelling Up.

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On 19 August the Council of Australian Governments (COAG) Energy Council decided that its Senior Committee of Officials would conduct a fresh review of the limited merits review (LMR) regime that applies to regulated energy networks in Australia. The current LMR regime allows networks regulated under the National Electricity Law and the National Gas Law to seek merits reviews of the decisions made by the Australian Energy Regulator. A number of such reviews have been sought recently.

The terms of reference for the inquiry states that it will assess:

The terms of reference also makes clear that the inquire must “explore all feasible options, including the removal of limited merits review, to achieve the objectives of administrative review generally and the energy sector specifically.”

A recent bulletin from Frontier (Asia-Pacific), Unappealing prospects, explains why a merits review regime is essential to a well-functioning regulatory system, and argues that a knee-jerk policy response that curtails or removes the existing LMR regime should be avoided.

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Moves to privatise the Port of Melbourne have taken a further step forward with the Australian Competition and Consumer Commission (ACCC) determining that it will not oppose proposals by two different consortia to acquire the 50 year lease of the Port of Melbourne.

The Port of Melbourne (POM) is the largest container and cargo port in Australia. The Victorian government commenced the formal transaction process for the 50 year lease of the POM in March this year. Ports have strong natural monopoly characteristics — there are usually few close substitutes, they are capital-intensive and expensive to replicate, and are often considered essential infrastructure because of the vital role they play in facilitating international trade and economic growth. The POM size and unique position and infrastructure gives the Port a degree of market power. It is generally agreed that there is a strong prima facie case for industries and assets with these characteristics to be regulated formally. However, with a few exceptions, in Australia (and, indeed, many other parts of the worlds) ports have not been subjected to formal, intrusive forms of economic regulation. In part, this is because government ownership is seen to provide a discipline on the pricing of port services.

The ACCC’s informal review of both the IFM Consortium and QIC Consortium proposals focused primarily on the cross-ownership interests in the NSW Ports, and the Port of Brisbane, and vertical relationships with port services providers operating at the POM. The ACCC found that the proposed acquisitions were unlikely to lessen competition, for a number of reasons. The ACCC found that competition between major Australian ports is limited, and the structure of the acquisition meant that there were consortium members who would not have interests in other ports, and so were likely to have an incentive to continue to compete for the above trade and customers.

The ACCC also considered the protections, particularly in relation to general port charges, offered by the new price regulatory regime. This regime will be administered by the Victorian Essential Services Commission (ESC). Consistent with Frontier (Asia-Pacific)’s advice to clients over many years, the sale of critical infrastructure often gives rise to new regulatory arrangements which formalise or strengthen previous Government controls. The new ESC-administered regime has a number of protections for users, including directions to the port lessee to cap annual tariff increases at CPI for 15 years, and otherwise to price consistently with a standard regulatory building block model for the majority of the port’s services. The ESC will monitor compliance and conduct 5 yearly formal reviews of pricing behaviour.

Frontier is assisting the ESC with implementation of the price regulatory regime that will apply to the Port of Melbourne.

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Has the time come to replace the Reserve Bank of Australia’s (RBA’s) mandate to keep inflation between two and three percent per annum with a ‘nominal GDP’ growth target of five and a half percent per annum? Nominal GDP (or nominal income) provides a better proxy for what consumers, businesses and governments actually care about than inflation. This briefing from Frontier Economics examines this.DOWNLOAD FULL PUBLICATION