Budget risk from mining tax challenge

22 Jun 2012, 4:55 pm   -   Source: AAP
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(AAP)

(AAP)

The government says it is confident its mining tax will hold up in court, after Fortescue Metals launched a High Court challenge.

The federal government budget risks falling into a heap if Fortescue Metals Group is successful in its High Court challenge against Labor's mining tax, the opposition says.

Andrew "Twiggy" Forrest's Fortescue Metals Group launched a challenge against the Minerals Resource Rent Tax (MRRT) on Friday, just over a week before the tax will be implemented.

The iron ore miner claims the tax preferences one state over another and restricts a state's ability to encourage mining, in contravention of the constitution.

"We believe we have a good case for challenging the MRRT on constitutional grounds and we look forward to the resolution of these important issues by the High Court," Fortescue chief executive Nev Power said.

The government is confident the legislation is constitutional.

Fortescue's legal experts expect the hearing to be held before the end of this year, with the decision three to six months after that.

The 30 per cent MRRT on the super profits of coal and iron ore companies, which starts on July 1, could be well entrenched by then.

"If the court finds in the favour of Mr Forrest, then one would suggest the structure of the Labor Party's budget falls in a heap," Nationals senator Barnaby Joyce told reporters in Canberra.

The MRRT is forecast to raise $13.4 billion in its first four years, which will be directed to a range of initiatives to support families, individuals and business.

Mr Forrest, Fortescue's chairman, has been a vocal opponent of the tax.

"Mr Forrest has made it clear that he is staunchly opposed to the government spreading the benefits of the mining boom to millions of households and small businesses who aren't in the fast lane, so this challenge comes as no great surprise," a spokesman for Treasurer Wayne Swan said.

A spokesman for West Australian Premier Colin Barnett told AAP the state government was considering joining the challenge to try to protect ownership of state assets.

The Association of Mining and Exploration Companies (AMEC) chief executive Simon Bennison said it was not yet clear if other miners would join the case.

Fortescue is not a member of the Minerals Council of Australia, which has previously said the MRRT is workable.

Opposition Leader Tony Abbott confirmed that a coalition government would ditch the new tax if a High Court challenge failed.

"We will abolish this tax, it's a bad tax and it will be gone. No ifs no buts, it will be gone under a coalition government," he told reporters in Sydney.

Opposition assistant treasury spokesman Mathias Cormann said the Gillard government had a very poor track record in ensuring its policy changes were consistent with relevant legal requirements, given that only a few months ago its Malaysia people-swap deal had been thrown out by the High Court.

After a mass revolt by the mining industry in 2010 in response to the then Kevin Rudd-led government's original proposal for a 40 per cent resource super profits tax, Prime Minister Julia Gillard struck a deal with BHP Billiton, Rio Tinto and Xstrata over the MRRT in her first week as the new Labor leader.

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