A Case for Taxi Subsidy

A Prickly Subject

PUBLIC TRANSPORT FUNDING:
SUBSIDY FOR THE TAXI USER

 PART ONE: THE CASE FOR SUBSIDY 

 Paul Browning, FCITSA
16 April 2019

 PREFACE

This is the first of a series of three papers on the issue of government subsidy for the minibus-taxi user.  It concludes that, although the case for such subsidy has been accepted since 1994, the reason that it has not been applied is the reluctance of individual taxi owner-operators to combine to form companies.  This has allowed government to make all the right noises without having to develop actual methods and secure the necessary funding.

The second paper: “The Taxi Operating Company” therefore discusses ways in which the taxi operators can be persuaded/required to form a company based on their existing local taxi association.

Finally, a paper “Elements of a Taxi User Subsidy” considers some of the requirements of a user-side (or demand-side) subsidy rather than the usual subsidised service contract.

Download paper here: Taxi user subsidy 1 – the case for subsidy

INTRODUCTION

The first Transport Minister in the new post-1994 dispensation was Mac Maharaj.  In April 1995 he set up the National Taxi Task Team (NTTT).  It comprised representatives of government and the taxi industry, together with specialist advisors.

The NTTT began its work with a series of 36 meetings with the taxi industry throughout South Africa. Its report in August 1996 said this:

“Although a wide range of issues was raised at all the hearings, the issues that were raised more often, in greater detail, and with most passion, were the demands for the government to address the issue of Subsidy, to level the ‘playing field’ between taxi, bus and rail……”(1)

More than two decades later, on 7 November 2018, Transport Minister Dr Blade Nzimande answered questions by MPs in the National Assembly.  Hansard records this comment:

“It is very clear that our public transport subsidy is still favouring the better off. For example…….if you calculate the amount of money that government is spending on Gautrain, whilst at the same time not giving hardly a cent to the minibus taxi industry which carries 68% of our passengers, that requires attention, it has to be changed.”(2)

The Minister used the example of Gautrain, perhaps because issues around the ‘patronage guarantee’ were beginning to bubble to the surface (3) but he could perhaps have made an even stronger comparison with the government funding given to bus operators and Metrorail.

According to a submission made to the Competition Commission (4), in the 2016/17 financial year the total capital and operating subsidies offered by the National government to bus and rail (including Gautrain) amounted to R34bn.  Of this, the taxi received R350m., or just over 1 per cent (in the form of the taxi recapitalisation grant).  Yet, as Minister Nzimande stated, the taxi carries in the order of 68 per cent of all public transport users.

This incongruity has been remarked upon by every subsequent Minister of Transport since 1994 (see Annexure).  Why, then, has there been no apparent progress towards a fairer system?

One answer may be found in another comment in the NTTT report of August 1996:

 “The historical inequitable distribution of funding, subsidy and support has contributed to the underdevelopment of minibus-taxi businesses. The NTTT considered the argument for subsidy in three ways; in terms of:

  • a moral argument;
  • a comparability argument; and
  • a practicality argument.

“What is conclusive is the practicality argument. In the short term there is no practical means of opening the minibus-taxi industry to the present subsidy system. There is a potential delivery mechanism, but no mechanism for reception and distribution.

“The NTTT has concluded that there is no realistic prospect of the minibus-taxi industry receiving funds from the existing DoT subsidy system. The future system, in terms of the Green Paper on National Transport Policy, will be based on the tender/contract system. User-side subsidies may also be considered. The minibus-taxi industry is at present in no position to participate in either.”

The ‘Green Paper’ was a draft of a White Paper on National Transport Policy.  The White Paper had been commissioned by Maharaj to cover all modes of transport by land, sea and air.  It was published shortly after the report of the NTTT but, as it had been preceded by the Green Paper; the NTTT was able to comment on the proposals which had emerged.

On public transport subsidy, the White Paper had this to say:

“Transport authorities, in consultation with communities, must define passenger transport needs at affordable fare levels in order to identify and target recipients of mobility support. Having identified the mobility needs of communities in order to determine the demand for state supported services, transport authorities should define routes and/or networks for tendered contracts.

“Minibus and other SMME transport operators will be encouraged to compete for the award of contracts by transport authorities.  Assistance will be offered to disadvantaged operators to enable them to participate in the system.” (5)

In a nutshell, local authorities would determine the levels of service and would put them out to tender.  Taxi operators would be offered “assistance” to enable them to compete.

As noted above, the NTTT had concluded that the taxi industry was in no position to participate in the proposed new forms of subsidy.  Having noted the promised assistance, it made this suggestion:

“What is needed is to begin now with a development programme which will in as short a time as possible enable minibus-taxi operators to participate in the new forms of subsidy schemes.”

No consistent and concerted development programme emerged, however.  In the intervening 20+ years there have been some well-meant attempts to provide business training for taxi operators, and some (short-lived) cooperatives were formed, but there has been no sign of the comprehensive development programme envisaged by the NTTT.

However, it is also true to say that the local authority planning/contracting model has also not achieved anything like the impact envisaged in the White Paper.  

PUBLIC TRANSPORT STRATEGY

An implementation plan for the White Paper policies was published by Minister Maharaj in May 1999, in the form of “Moving South Africa – the Action Agenda”. The public transport elements of this took some time to be developed into an action plan, but in February 2007 Cabinet approved the Public Transport Strategy.

The 2007 Strategy offered this vision:

“The longer-term vision until 2020 is to develop a system that places over 85 percent of a metropolitan city’s population within 1km of an Integrated Rapid Public Transport Network trunk (road and rail) or feeder (road) corridor.” (6)

We are less than a year away from 2020, and it can be said with absolute certainty that the vision will not be brought to reality. 

There is now, however, a hint of recognition that things must change.  On 28 February 2018, Cabinet approved for public consultation a Draft Revised White Paper on National Transport Policy (7), intended to update and revise the 1996 White Paper.  In its list of Public Transport Planning and Regulation Issues, the Revised White Paper comments:

“Transport plans are often idealistic and impracticable. Transport plans should rather focus on solving immediate transport problems.”

Those ‘immediate transport problems’ must surely recognise the fact that, as Minister Nzimande has said in the comment quoted above, the taxi carries some 68 per cent of public transport users.

There is, however, a potentially even more significant reason for continuing to accept the reality of the taxi as the major public transport service provider – the imminent Fourth Industrial Revolution.

Writing in the Sunday Times in June 2017, Peter Bruce recounted a discussion he had had with a friend: “He reminded me that a mutual acquaintance had just opened a R500m factory in Gauteng that is so automated it will employ just five people.” (8)

Since the start of the (first) Industrial Revolution and the emergence of factories, the practice has been for employees to go to a place of work where there would be equipment for them to use, and supervisors to make sure that work was carried out.

In the coming years, much of this work will be automated.  There are already supply depots which are fully automated; robot ‘searchers’ identify and extract products. 

The social and economic challenges, though profound, are not the concern of this paper.  There are, however, significant implications for the transport needs of the future.  We cannot predict what those needs will be, only that they will inevitably be significantly different from those to which we have been accustomed, and that therefore very careful consideration must be given to the advisability of investment in large-scale road construction or public transport systems designed to meet existing and projected needs.

The taxi is flexible and can (and does) readily adapt to changing market demands.  It may well be that the future world of work will require fewer mass transit services of the kind that have been the norm for a century or more.

The taxi currently carries the majority of public transport users; it can confidently be predicted that it will continue to do so as the changes in the world of work unfold.

All these factors suggest that the subsidy anomaly should and must be addressed.

THE SUBSIDY MODEL

Government has always insisted that its financial support for the bus and rail operators is not intended for the operators per se but rather for the user. 

In 2017 Transport Minister Joe Maswanganyi made this comment:

‘We are finalising the much-awaited Public Transport Subsidy Policy. The policy will focus more on subsidising the user than the operators….” (9)

The implication is clear – there will be a ‘user-side’ (sometimes called ‘demand-side’) subsidy; the recipient of the subsidy will be able to choose which mode best suits him or her for a specific trip, and act accordingly.

That is the ideal end-state.  Getting there will involve dealing with a host of established interests, not least of course, the existing bus and rail operators who are in receipt of the annual R34bn subsidy mentioned earlier.  In November last year (2018) the Department of Transport announced the appointment of consultants to undertake the development of a new public transport policy (10).  The Terms of Reference of the tender announcement make it clear that the emphasis will be on rationalising the existing subsidies given to bus and rail operators.

Whilst these complex historical issues are being addressed, it will be possible for an innovative user-side subsidy to be applied in the first instance to the taxi only.  The strategy will be starting from a situation where there is no existing subsidy system which needs to be changed.  A taxi user-side subsidy can therefore pave the way for a future multi-modal version.

However, In the fairly short period since the possibility of a user-side subsidy for the taxi has been mooted (from about the time of Minister Mswanganyi’s 2017 comment) the two sides – government and the taxi leadership – seem to have adopted rather different ideas about how it might be administered.

Government has taken it as a given that the local taxi associations must form corporate bodies (the proprietary company [Pty Ltd] is favoured) which will own and operate the vehicle fleet and in doing so provide a safe and legally-compliant service, and one through which government subsidy funds can be prudently applied.

The Draft Revised White Paper on National Transport Policy indicated government thinking on the issue:

“The Government will investigate the feasibility of……. providing assistance to the MBT [taxi] industry to consolidate its thousands of individual operators, each owning one or two taxis, into companies operating fleets of taxis on behalf of shareholders. This has many advantages for government and the industry, including the ability to introduce cashless fare collection…….”

Such a development does indeed have many advantages for government. Quite apart from making it possible to introduce a subsidy for taxi users, the taxi company would be able (indeed, required) to introduce management measures such as those used by the formal sector bus companies.  This would incur higher costs than now, but the subsidy formula would take this into account.  The advantages are so obvious to government that they must, in the view of government, surely also be obvious to the taxi operators.

The taxi industry, though, does not necessarily see matters the same way.  The Revised White Paper, as we have noted above, suggests that among the advantages for both government and the industry is “……the ability to introduce cashless fare collection”.  The present cash payment system almost inevitably means that the owner gets less than the total fares paid to the driver.  Surely the owner (in his new capacity as a shareholder) would welcome a system which safeguarded the fares income?

The taxi owner, however, is suspicious of any third party interfering in his business.  Over the 30 years or so since the owner-driver began to give way to the owner-operator employing a driver, something of a modus vivendi has become established.  Rudimentary though it may be, the owner-operator feels that he is in control of his business.

For similar reasons, the taxi industry seems happy to consider a user-side subsidy rather than a contract-for-service.  The industry takes the view that the user-side subsidy would imply little or no change to the current pattern of ownership and operation.  In a way which government must itself determine, taxi users will be given directly some form of financial assistance to defray the costs of their taxi trip.  The taxi driver will continue to collect cash as now, but the user will quite separately receive a payment to defray the cost of the fare.  In this way, the owner will continue to receive cash income at the same level as now (though hopefully, he would think, rather more income since the cost to the user will be less and s/he may therefore make more trips).

This latter view is understandable but is unlikely to be acceptable.  Government cannot possibly make payments to millions of individual taxi users.  Nor is it willing to contemplate contracting with tens of thousands of individual owner-operators.  The local associations might be an option, but they do not have the required legal capacity and, in any case, do not have effective control of the operations of their members.  Government will insist on the formation of Taxi Operating Companies (TOCs) by associations and their members.

It can be argued that the reluctance of the taxi industry to form such companies is what has prevented their customers from obtaining the benefit of government subsidy.  That, however, is only one side of the story.  Government may well have been not altogether unhappy at avoiding the complex world of taxi subsidy.  In the same way, National Treasury will perhaps be content that the subject of taxi subsidy funding has not had to be considered.

Nonetheless, if there is to be equitable treatment of all public transport users, then a method must be found to offer subsidy to taxi customers.

This can only happen if the individual taxi owners can be persuaded to combine their vehicles into a corporate entity, one which will also employ their drivers and will be responsible for the standard of operations.

Appeals to the industry to do this have had no result.  What will be needed is something of a ‘push-pull’ strategy.  This will be the subject of the second paper in this series.

References

  1. National Taxi Task Team, Final Report and Recommendations 6 August 1996
  2. Hansard National Assembly Wednesday, 7 November 2018, p37
  3. “Gautrain’s R100million tax ticket” Pretoria News 14 January 2019
  4. Philip van Ryneveld, submission to Competition Commission Market Inquiry into Public Transport, 20 June 2018
  5. White Paper on National Transport Policy, Department of Transport, 20 August 1996
  6. Public Transport Strategy, Department of Transport, March 2007
  7. Draft Revised White Paper on National Transport Policy 2017, Department of Transport
  8. “Can the state save us as jobs run out?”, Peter Bruce, Sunday Times 4 June 2017
  9. Budget Vote Speech at the National Assembly by Minister of Transport, Mr Joe Maswanganyi, MP, New Assembly Chambers, Cape Town, 23 May 2017
  10. Government Tender Bulletin 3039 16 November 2018: “Appointment of a Service Provider for the Development of Public Transport Subsidy Policy”

Download paper here: Taxi user subsidy 1 – the case for subsidy

ANNEXURE

SOUTH AFRICA MINIBUS-TAXI INDUSTRY: GOVERNMENT SUBSIDY

COMMENTS BY MINISTERS OF TRANSPORT 1994-2018

Each Minister of Transport since 1994 has made the right noises about funding support for the commuter.

Minister Mac Maharaj (1994-1999)

In 1995 Minister Maharaj set up the National Taxi Task Team. 

It comprised representatives of government and the taxi industry, together with specialist advisors.  It was formed in April 1995 and began its work with a series of 36 meetings with the taxi industry throughout South Africa. 

Its report in August 1996 said this:

“Although a wide range of issues was raised at all the hearings, the issues that were raised more often, in greater detail, and with most passion, were the demands for the government to address the issue of Subsidy, to level the ‘playing field’ between taxi bus and rail; and the need for the industry to be properly regulated by addressing all the problems involving Local Road Transportation Boards and Permits.”(1)

So more than 20 years ago, the taxi industry at ground level placed the matter of subsidy right at the top of its list of concerns.

The response from Minister Mac Maharaj was the publication in December 1996 of the White Paper on Land Transport Policy.  This said that public transport services would be planned by local authorities and offered to operators by means of tenders.  Taxi operators, it said, would be able to compete for those tenders.  There appears to be no record of the reaction of the taxi industry to it being told that it should “compete” for the services it would consider it had itself built up.

Minister Dullah Omar (1999-2004)

On 5 August 2000 the Department of Transport published a report on a meeting which had taken place a few days earlier between Minister Dullah Omar and the nine provincial transport MECs. 

It included the following:

“The issue of subsidies from which the bus industry benefits (but not the minibus taxi industry) was raised in meetings between SATACO [a predecessor to SANTACO] and the Minister of Transport, Dullah Omar.  In the Addendum to the Memorandum of Understanding between the parties, the issue of subsidies has been raised as matter which needs to be looked at afresh. 

“Accordingly, joint groups will be set up to look at the question of subsidies and to see how they should be dealt with in future.  This is not a matter which can be resolved overnight.  This is a national matter and not just a provincial one.” (2)

The results of the deliberations of those joint groups have disappeared into the bowels of history.  It is certainly true that the issue of subsidies was not one which could ‘be resolved overnight’.  Almost 18 years later it has still not been resolved.

Minister Jeff Radebe (2004-2009)

It seems that the joint groups set up by Minister Omar did not reach a satisfactory conclusion, because in June 2004 Minister Jeff Radebe had this to say in his budget vote speech in the National Assembly:

“As part of our initial plan to remedy the situation towards implementing an overarching development agenda in the transport sector, we have identified three main focus areas for 2004/05. Alongside day-to-day operations, these include completing the comprehensive review of the public transport system by September (2004), including the subsidy system………….

“Factors to consider include the mis-match between how the subsidies are currently allocated, the types of public transport used by commuters, and whether special category commuters like learners, the isolated, the infirm, aged, or unemployed are discriminated against. We also need to consider alternative means of delivery and payment.” (3)

Once again, it must be said that this review did not result in any change in the subsidy system.

Minister S’bu Ndebele (2009-2012)

In his speech at the SANTACO National Conference on 4 May 2010, Minister S’bu Ndebele made his contribution to the subsidy debate:

“Three pillars form the basis for the economic empowerment of the industry:

  • Refinancing of the taxi industry through the Taxi Recapitalisation Programme and integration into the subsidy system
  • Corporatisation through formation of taxi co-operatives
  • Capacity development through education and training programmes

“We have not progressed much on the subsidy front. The corporatisation of the industry is an important step in ensuring that the industry is a major player within our subsidy system.” (4)

So almost a decade after Minister Dullah Omar had started the process of reviewing public transport subsidy, one of his successors had to acknowledge that: “We have not progressed much on the subsidy front”.

Minister Ben Martins (2012-2013)

In his speech at the launch of October Transport Month 2012, Minister Martins said this:

“The public transport sector is geared for a fundamental restructuring with the review of the existing bus subsidy scheme to include mini-bus taxis.” (5)

Minister Martins made a further reference to the review in a speech on 31 January 2013:

“The Department will also review the current public transport subsidies with a view to extend the benefits to other operators of public transport – in addition to the bus operators who have been receiving subsidies for many years.” (6)

There did, however, seem to be rather more substance to this latest effort.  Six weeks later, on 19 March 2013, the Department of Transport’s Acting Chief Director: Public Transport Industry Development made a presentation to the Public Services Select Committee of the National Council of Provinces.  His presentation was entitled: “National Road Based Public Transport Transformation Plan: from bus to public transport subsidisation”, indicating that there was indeed in being a ‘Transformation Plan’.

Minister Dipuo Peters (2013-2017)

In a statement on 10 October 2015, Minister Peters said that:

“The Department of Transport will continue to support the [taxi] industry and it is working on an integrated commuter subsidy system.” (7)

Minister Joe Maswanganyi (2017-2018)

The work on the integrated commuter subsidy system referred to by Minister Peters appeared to be bearing fruit some 18 months later.  In his Budget Vote speech on 25 March 2017, Minister Joe Maswanganyi disclosed that:

‘We are finalising the much-awaited Public Transport Subsidy Policy. The policy will focus more on subsidising the user than the operators, irrespective of the mode used. It is totally unacceptable that other modes, notably taxis are not included in the subsidy regime.’ (8)

It was no doubt pleasing to the taxi industry to hear that the “much awaited” Public Transport Subsidy Policy was in course of being finalised.

Minister Dr Blade Nzimande (2018-present)

The current Minister of Transport, Dr Blade Nzimande, seemed slightly less sure on this issue.  In his Budget Vote speech on 18 May this year, he said:

“We will engage with the taxi industry regarding all matters that are of concern to both government and the industry, including the issue of subsidies for the sector.” (9)

It may well be that the Minister was indicating that the ‘engagement’ on subsidies would be in respect of the promised Public Transport Subsidy Policy.

References

  1. National Taxi Task Team, Final Report and Recommendations 6 August 1996. Sec 2.6 Assessment of the Public Hearings
  2. Department of Transport 6 August 2000: “Minister Dullah Omar meets Transport MECs”
  3. Minister of Transport Jeff Radebe, Budget Vote Speech, Parliament 2004.
  4. Keynote address by Minister of Transport Mr Sibusiso Ndebele, MP, to the South African National Taxi Association Council (SANTACO) National Conference, 4 May 2010
  5. Speech delivered by Honourable Dikobe Ben Martins, Minister of Transport, at the launch of the 2012 October Transport Month in Soweto, 1 Oct 2012
  6. Speech delivered by the Minister of Transport, Honourable Dikobe Ben Martins, at the official opening of the Misgund Interchange and the launch of the Gauteng On-Road Emergency Services, 31 Jan 2013
  7. Minister of Transport’s Statement on Lawlessness in the Taxi Industry, Department of Transport, 10 October 2015
  8. Budget Vote Speech at the National Assembly by Minister of Transport, Mr Joe Maswanganyi, MP, New Assembly Chambers, Cape Town, 25 March 2017
  9. Budget Vote Address by the Minister of Transport, Dr Blade Nzimande, MP, at The Old Assembly Chambers, Cape Town, 18 May 2018

Download paper here: Taxi user subsidy 1 – the case for subsidy

© Paul Browning 2019
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