The New Zealand Herald reported this morning:
On October 1, at the Labour Government’s directive, NZ Transport Agency Waka Kotahi (NZTA) changed driver licence fees to an all-in-one fee for each stage of testing and the fees to resit a driver test, or to cancel or reschedule, were removed.
The intention was to help ease costs for people going through the driver licensing system. The Transport Minister at the time, Michael Wood, said the changes would save drivers on average $86 each and cumulatively save $5.5 million every year altogether.
But delays to practical test bookings have followed since the change. Average wait times for the week ending April 14 were 44 days for a full licence test throughout the country and 55 days for a restricted test.
The longest delays for a full test were 52 days in the Bay of Plenty, and 68 days in Wellington for a restricted test.
The issue is affecting all regions in New Zealand. As an example, at 10am on April 3 there were only 15 available spots nationwide for a full licence test and only 10 for a restricted licence test.
It should be no surprise that when you lower the price of something, without that price change being driven by a decrease in costs or a decrease in demand, you end up with a shortage. This can be seen in the diagram below. At the original market price for a driver licence test of P0, the quantity of driver licence tests is Q0. That quantity (Q0) is both the quantity of tests demanded, and the quantity of tests supplied (the number of tests available for drivers to take). We can say that the market clears, because quantity demanded is equal to quantity supplied (the market is in equilibrium).
With the market price below equilibrium, at P1, [*] the quantity of driver licence tests demanded is QD, while the quantity of driver licence tests supplied is QS. Since QD is greater than QS, there is excess demand (a shortage). That is what we are seeing, with long waits for driver licence tests.
There are other problems as well. From the same New Zealand Herald article:
[VTNZ’s national technical manager for vehicle testing, Craig] Basher said a large factor of the delays has been the amount of people not showing up to tests, with 2000 no-shows for booked practical tests in the last month.
He has also received feedback that more drivers are turning up unprepared and with unfit cars, making simple mistakes and trying to rebook straight away without further practice.
When a learner driver has to pay for another driving test when they miss an appointment, that creates an incentive to show up, and to show up prepared and with a good quality vehicle. When the learner driver doesn't have to pay, the incentive to show up is much less. In other words, the opportunity cost of missing a driving test is lower when learner drivers don't have to pay for the next appointment. When the opportunity cost of something decreases, people tend to do more of it. In this case, that means more missed driving test appointments.
None of this is surprising to an economist. And the solution is obvious:
[Minister of Transport, Simeon] Brown said he is talking with NZTA and the Ministry of Transport to deal with the issue, which he said could include reintroducing resitting fees.
Some may argue that increasing the number of test slots, and increasing the number of driving instructors, would decrease the shortage. However, that ignores that part of the problem is the number of missed appointments. Both the shortage and the excessive number of missed appointments could be alleviated if the price of repeat driving tests was allowed to increase. Learner drivers would have to pay a little more to get their licence, but they wouldn't have to wait as long, and would have a stronger incentive to show up for their driving test well-prepared.
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[*] Notice that the price doesn't fall all the way to zero, because the first drivers test is not free, only the resits. So, the average price of a drivers licence test is not zero.
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