Australia imposes 30% mining tax

The Australian Parliament has passed a bill for a 30% mining tax on iron ore and coal mine profits in the country, leaving some miners and state governments threatening to fight back. 

The legislation is known as the Minerals Resource Rent Tax (MRRT), which Prime Minister Julia Gillard proposed two years ago when she took office. The MRRT was viewed more favourably by mining groups than the Resource Super Profits Tax (RSPT) proposed by Gillard’s predecessor, Kevin Rudd. 

The former prime minister had planned to impose a 40% levy on profits generated from all mineral production in the country. This proposition was met by an aggressive ad campaign largely funded by mining groups, which contributed to Rudd’s demise. After falling in the polls, Rudd was booted by the Labor Party in favour of Gillard, Australia’s first female prime minister.

Gillard appeased some major miners by narrowing down the scope of the RSPT, and applying a 30% tax on iron ore and coal producers that have annual profits of more than A$75 million. 

Gillard’s government says the law will help distribute the wealth created by Australia’s decade-long mining boom. The government anticipates collecting A$10.6 billion, or roughly US$11 billion, over the first three years. 

The MRRT, expected to come into effect on July 1, would impact 30 companies, including majors BHP Billiton (BHP-N, BLT-L, BHP-A), Rio Tinto (RIO-N, RIO-L, RIO-A) and Xstrata (XTA-L).

However some miners and state governments are aiming to knock down the new mineral tax by mounting a High Court challenge. 

Fortescue Metals Group (FMG-A), Australia’s third largest iron-ore producer, confirmed that it’s seeking legal action. 

“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 finalized,” Cameron Morse, the company’s spokesperson, says in an email. 

“Fortescue is not opposed to paying our fair share of taxes but the MRRT is a poorly designed tax, drafted by the big miners behind closed doors to minimize their tax exposure at the expense of the rest of the industry,” Morse says.

Norton Rose’s Sydney-based partner Peter Norman explains that a High Court challenge can be made, and argues that imposing this mineral tax was not within the constitutional power of the federal government. 

He says such challenges are common, but rarely successful. 

“We had in the past new taxes introduced and typically some taxpayer might challenge the constitutional validity of the making of the new tax, and generally there has not been a lot of success in trying to challenge constitutional validity on that basis.” 

There has been talk that the governments of Western Australia, and possibly New South Wales, will join the High Court challenge  to protect the profits they receive from mining royalties. 

“Under the mineral resource rent tax, the way it works is that a credit is given against the tax to any of the state royalties imposed. And the federal government had hoped that it would be able to reach an agreement with the state governments in terms of effectively sharing the revenue from these resource projects,” Norman explains. 

But already he says some states are planning to increase mining royalties, which would undermine revenues the federal government could possibly raise from the MRRT.  

“So, it puts into play a very interesting federal-state dynamic, in terms of each government getting what it considers to be its fair share from these resource projects. That’s something that really hasn’t been resolved.”

Gillard’s government responded to the threat by saying that states increasing their mining royalties could miss out on its $6-billion share in infrastructure funds generated by the MRRT.