Some jurisdictions are compensating taxi plate owners as they implement new ridesharing legislation. Is it time to consider something similar in Canada?

To say that Toronto’s cab industry is at a breaking point would be an understatement. Hundreds of cab drivers protested and wreaked havoc on Toronto’s streets the other week, arguing that the presence of Uber is causing them significant financial hardship. One of the main arguments of those protesting was that the City of Toronto was too slow to address Uber’s encroachment upon their once protected turf.

Toronto’s response, thus far, has not been surprising. Many cities are approaching ridesharing cautiously and, as a result, are slow to harmonize regulations and create a level playing field between services like Uber and the local taxi industry. Some jurisdictions, however, are tackling the issue head on. New South Wales, Australia is one such jurisdiction. In addition to bringing companies like Uber under existing transportation rules, New South Wales will charge ridesharing passengers an extra $1.00 for every trip over the next five years. The money gathered from the levy will be placed into a compensation fund for taxi drivers. The New South Wales government hopes to raise $250 million and compensate individual taxi license owners up to $175,000 for the introduction of ridesharing.

This unique plan has been criticized, but it raises an important question in the protracted Uber-taxi dispute here in Canada: should we compensate existing license holders when harmonizing taxi regulations?

The answer to that question may be a resounding “no” to some, but put yourself in the place of a taxi driver. You wanted to break into the industry many years ago. The government may have been selling licenses for a few hundred dollars, but because city council had capped the number of available licenses, you had to turn to the private market to find a license in order to operate legally. Due to the cap, you might have had to pay upwards of $250,000 for your license – a fairly common amount in large markets. After years of operating legally, Uber arrives and seemingly flouts local bylaws, as their drivers operate without the massive license investment you were forced to make.

On top of the license investment, add in higher insurance rates, semi-annual inspections and ever increasing operating costs and you can understand why taxi drivers are upset with the introduction of ridesharing companies. With Uber in town, the after-market price of taxi licenses is dropping steadily; in some markets licenses are worth one-third of their value only a few years ago. Selling your license and working for a ridesharing company is not feasible without accepting a large loss on your investment.

The ridesharing levy in New South Wales aims to compensate taxi drivers for the loss of their plate investment, but goes about it in a very clumsy way. Consumers, who had nothing to do with creating the previous regulatory regime, are being asked to shoulder the cost of transitioning to a new one. Additionally, the government is covering the after-market value of the license, not the established price. On the other side of the argument, while governments did not set the high private-sale price of taxi licenses, they created restrictions on availability that ultimately drove up prices.

The compensation issue is complicated, but cannot be completely ignored as the industry transitions. The solution put forward by the New South Wales government appears to be a sincere attempt at compensating cab drivers for the loss of their investment, but one that should make us uneasy. We should not be so quick to punish innovation even if it contravenes local by-laws. We may decide compensation is not needed, but at the very least, it’s a question local policy-makers should consider carefully as they proceed.

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