Fortescue chairman Andrew Forrest has lost the Hight Court challenge. Photo: Glenn Hunt
A High Court challenge by Andrew ‘‘Twiggy’’ Forrest's Fortescue Metals to the validity of the mining tax has been dismissed, marking a setback to the resource sector’s deepseated opposition to the tax.
Even though the Minerals Resource Rent Tax (MRRT) has raised negligible revenue from miners, its imposition has rankled miners who argue they already pay royalties to state governments along with income tax to the federal government.
A liability to pay the so-called super-profits tax imposed on miners is only triggered when a miner generates an annual profit of $75 million or more, after taking various deductions into account.
The tax on iron-ore and coal profits, introduced by the Labor government, is predicted to raise $600 million in the current fiscal year, according to Treasury forecasts released last week. That’s down from the $4 billion projected by Treasury in May 2011, as slumping commodity prices on weaker Chinese demand curb mining profits.
Mr Forrest's Fortescue Metals argued the MRRT was invalid for a number of reasons, including the fact that it cut across state's rights in the execution of their functions.
The challenge was dismissed unanimously by the full High Court.
''The treatment of state mining royalties by the MRRT Act . . . did not discriminate between states and that the Acts did not give preference to one state over another,'' the court ruled.
During the trial, lawyers representing the federal government refuted claims by Fortescue lawyers that the mining tax has inhibited the states from developing their resources.
Mr Forrest's lawyers contended the federal government had punished the states for reducing royalties for individual mining companies by imposing the MRRT, which is levied across the board.
Fortescue said it was ‘‘disappointed’’ by the High Court ruling, pointing out that the ‘‘very low’’ revenue collected by the tax vindicated its opposition to the tax.
“Fortescue challenged the MRRT because it was an unreasonable intrusion into an area of state responsibility and that it was also an unfair, discriminatory and complex tax. We’re disappointed by today’s decision,” the Fortescue managing director Mr Nev Power said.
Fortescue said the tax was ‘‘ill-conceived’’, saying it was ‘‘an unfair and administratively burdensome and inefficient tax’’.
The company has incurred up to $5 million of costs resulting from the tax, with the mining sector already paying a high level of tax since along with company tax, it also pays royalties to state governments.
“Fortescue expects to pay $1.5 billion in company tax and royalties this financial year rising to $2 billion in the years ahead,” Mr Power said.
Mr Forrest is chairman and major shareholder of Fortescue and a former chief executive of the iron ore miner.
Opposition leader Tony Abbott has promised to repeal the tax should his coalition win the federal election, saying the revenue shortfall is an example of the government’s failure to manage the economy.
In Adelaide this morning, Mr Abbott repeated the pledge in response to the High Court news.
''The mining tax will be gone as of July 1 next year if you vote for the Coalition,'' he said.
Treasurer Chris Bowen said he obviously welcomed the High Court’s decision.
Mr Bowen said he had no plans to change the MRRT if Labor won the September federal election, considering the process of implementing it was ‘‘torturous’’.
He appreciated the tax was controversial but denied it was a failure, even though it had raised far less than originally anticipated.
''It will go up and down from time to time but now that it's in, we wouldn’t change it,'' Mr Bowen told ABC radio.
''It still makes a contribution . . . not as much as was originally thought but it's still substantial.''
Mr Bowen said the tax had been well designed because it hit up miners when times were good.
''It responds to the changing circumstances. If the mining sector was slowing and we were still taking tens of billions of dollars worth of tax, then you'd be pointing out there's something wrong with the tax.''
The mining tax, designed by former prime minister Julia Gillard and then treasurer Wayne Swan, has drawn criticism from mining companies, Coalition-led state governments and billionaire Gina Rinehart, Asia’s richest woman.
The structure of the MRRT offsets any reduction in state taxes, so if Western Australia cuts levies in a bid to spur development the federal tax rises and eliminates the difference. That inhibits states from offering tax breaks to companies agreeing to finance development in remote regions, WA argued in a filing to the High Court late last year.
The states’ argument was wrong because the recent practice had been to boost state royalties ‘‘to cash in on high ore prices in global markets,’’ the federal government said.
with Bloomberg and AAP