Australia Says Tax Gripes Turn Constitution on Its Head

Claims by Fortescue Metals Group Ltd. (FMG) and state governments that Australia’s mining tax is discriminatory turns the country’s Constitution on its head, the federal government said.

Fortescue, Australia’s third-biggest iron-ore producer, sued in the nation’s highest court in June to nullify the Minerals Resource Rent Tax, and has the backing of the Queensland and Western Australian governments. A hearing before the High Court of Australia is scheduled to begin March 6.

“The case should be seen for what it is,” the Australian government said in a Jan. 25 court filing in response to the lawsuit. “The plaintiffs do not like the MRRT Act because they may have to pay more.”

Prime Minister Julia Gillard’s Labor government implemented the mining tax on July 1 in a bid to boost revenue and return the federal budget to surplus by this year, when an election is due. Weaker growth and a strong local currency have curbed tax receipts, making a surplus unlikely this fiscal year, according to Treasurer Wayne Swan.

Under the law, iron ore and coal-mining companies pay a tax of 22.5 percent on profits greater than A$125 million ($130 million). No tax applies for profits of less than A$75 million, and rates are staggered for earnings in between, according to the filing.

Australian Greens party leader Christine Milne said this month that the tax has failed to raise any money so far, the Australian Financial Review reported.

The government has refused to provide monthly revenue updates on the mining tax, claiming those would breach the privacy provisions of the tax code, according to the report.

Inviting Criticism

Gillard’s agenda has drawn criticism from mining companies, state governments aligned with the Liberal-National opposition and billionaire Gina Rinehart, Asia’s richest woman.

The structure of the mining tax offsets any reduction in state taxes, inhibiting states from offering tax breaks to companies agreeing to finance development in remote regions, Western Australia said in a Dec. 21 filing to the high court.

The states’ argument is a false one because the recent practice has been to boost state royalties “to cash in on high ore prices in global markets,” the federal government said.

States can build railways or harbors, provide trains, offer nominal rent for land leased by companies for housing or other infrastructure, and can even reimburse miners for the MRRT, the federal government said.

“The means available to a state to encourage economic development remain legion,” according to the Australian government’s filing. To assert that there is discrimination “is to turn the Constitution on its head,” it said.

The case is between Fortescue Metals Group Ltd. and The Commonwealth of Australia. S163/2012. High Court of Australia (Sydney).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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