High Court rejects mining tax challenge

The High Court challenge led by Andrew Forrest's Fortescue Metals to the validity of the mining tax has been dismissed in a setback to the resource sector's opposition to it.

Even though the minerals resource rent tax has raised negligible revenue, its imposition rankles miners, who argue that 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 is triggered when a miner generates an annual profit of $75 million, or more, after taking various deductions into account.

Fortescue Metals argued that the tax was invalid for several reasons, including that it cut across states' 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.

The action sought to argue that some portions of the legislation "were not valid laws of the Commonwealth".

Before the court, lawyers representing the federal government rejected the claims of Fortescue lawyers that the mining tax had inhibited the states from developing their resources.

Mr Forrest's lawyers contended that the federal government had punished the states for reducing royalties for individual mining companies by imposing the tax, which is levied across the board.

Fortescue said it was "disappointed" by the High Court ruling, pointing out that the "very low" level of revenue collected by the tax vindicated its opposition to it.

Fortescue managing director Neville Power said: "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 tax was "ill-conceived", Fortescue said, and "an unfair and administratively burdensome and inefficient tax".

Fortescue alone has incurred up to $5 million of costs to comply with the demands of the tax, with the mining sector paying a high level of tax already since, along with company tax, it also pays mineral 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.

Opposition Leader Tony Abbott has promised to repeal the tax should his Coalition win the federal election. Mr Abbott has said the revenue shortfall was an example of the government's failure to manage the economy.

Treasurer Chris Bowen welcomed the High Court decision. He said he had no plans to change the tax if Labor was returned to government.

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.