Mining giants as well as some state governments are threatening to take the federal government to the High Court, claiming the Mining Resource Rent Tax discriminates against states and will unfairly cost businesses. The challenge comes after the government’s Malaysia Solution was found to be invalid by the High Court last year.

Who’s contesting?

Mining bigwig Andrew “Twiggy” Forrest from Fortescue is threatening to challenge. “The minerals resource rent tax is unfair, narrowly based, complex, inefficient and will reduce investment and future jobs in the Australian mining industry,” a Fortescue spokesperson told The Australian. “As Fortescue has previously advised, the company has engaged senior counsel and will commence legal proceedings after the legislation has been enacted and legal opinion has been finalised.”

Western Australian Premier Colin Barnett has also signaled that the WA government may contest the tax. “The tax is discriminatory, it only picks up on iron ore and coal [and] where do you find iron ore and coal? In Western Australia and Queensland. So it’s the other states taxing the mineral states on the false premise that they belong to the Commonwealth,” he said.

In an interview on ABC’s AM, Treasurer Wayne Swan said he’s very confident the High Court will uphold the mining tax. He argues the tax is a company tax, which is in line with constitutional law.

On what grounds can the tax be contested?

According to experts, there are many small technicalities on which the tax could be argued. Section 114 of the constitution prevents federal taxes on state property. Minerals that are underground belong to the states and the Commonwealth cannot tax them.

Professor John Williams, dean of law at the University of Adelaide, told Crikey this argument is weak: “Section 114 relies on assumptions that I just don’t believe are true.”

Anne Twomey, professor of constitutional law at the University of Sydney, points to the extreme complexity in the arguments. The states own the minerals in the ground, she explains, but once you extract them they are of separate ownership — a mining company that sells them for profit. According to Twomey, the High Court would have to examine if the MRRT is really a tax on minerals or profits.

Williams guesses the government has carefully drafted the tax around section 114. “There is no way that the Commonwealth has drafted the law to fall on the property of the states. It will be on the profits,” he said.

Constitutional law expert Peter Black told The Drum last night the challenge could potentially backfire on the states: “The High Court could actually say that these minerals are indeed the property of the Commonwealth and not the state.”

Could the MRRT be discriminatory?

Barnett seems to think Canberra is picking on WA and Queensland.

Twomey referred Crikey to Section 51:2 of the constitution which says the Commonwealth can impose laws upon the states but cannot discriminate. It’s similar to section 99 that prevents the Commonwealth from discriminating against states or giving preference.

Twomey notes that one of the arguments that could occur is that the revenue received from mining is spent in WA and contributes to regional infrastructure, and therefore taxing miners could constitute discrimination as it doesn’t take their local spending into account.

“There is an argument,” acknowledged Williams. “But it may not arise because the government is taxing uniformly. The state would have to argue that they would be losing revenue.”

What about state royalties and discrimination?

Twomey says another complex argument is that of state royalties. When imposing the MRRT the Commonwealth takes into account how much the relevant company has paid in royalties. It will be different for one miner to pay in one state than in another and that way the tax rate is different from state to state.

It’s possible miners could argue this is an unequal tax and it is applied to miners according to the state they live in, she says.

Can the miners and states win?

“The issues are so complex … [there] may be a greater chance that there might be a better outcome [if they fight it],” Twomey said, explaining there are reasonable arguments and that if successful it would effectively alter the constitution. “They do have a chance.”

Williams disagrees. He says he “cannot see a strong constitutional argument that would invalidate the tax … they [the arguments] are all a stretch”. He speculates the government has carefully drafted the legislation to prevent such constitutional challenges.

As there are many small, complex technicalities that could be argued by the states, Williams believes they have firmer ground to contest the tax than miners.