Fortescue Metals Group Ltd. (FMG) sued Australia’s federal government in the country’s top court over a plan to tax iron ore and coal company profits, threatening a key source of future government revenue.
In documents filed today in the High Court of Australia, Fortescue, the nation’s third-biggest iron-ore exporter, seeks a ruling declaring the Mineral Resource and Rent Tax invalid. The tax discriminates between the states, curtails their sovereignty and restricts their ability to encourage mining, Perth-based Fortescue said in the court filing.
“We have a good case for challenging the Mineral Resource Rent Tax on constitutional grounds and we look forward to the resolution of these important issues by the High Court,” Chief Executive Officer Nev Power said today in a statement.
Prime Minister Julia Gillard is implementing the levy from July 1 as she bids to turn the government’s budget to surplus by next year. The tax is expected to reap about A$10.6 billion ($10.7 billion) within three years from Fortescue, BHP Billiton Ltd. (BHP), Rio Tinto Group and other mining companies, according to Treasury estimates released in October. Big policy changes often draw challenges, said Nick Economou, a political analyst at Monash University in Melbourne.
“Historically in Australia, in fights over state and federal matters, the Commonwealth nearly always wins,” Economou said. “Still, the High Court can sometimes surprise.” Should the government lose, Gillard will be able to find other ways to meet her surplus promise, he said.
Last year, the High Court struck down Gillard’s plan to send illegal immigrants who arrive by boat to Malaysia. Tobacco companies are challenging a law that would require cigarettes to be sold in plain packages.
“There’s a significant business interest at stake” in the Fortescue case and it’s not a surprise that the legality of the tax would be challenged, George Williams, a professor of constitutional law at the University of New South Wales in Sydney, said today in a phone interview. “Billions of dollars are at stake.”
Williams said it’s not possible to judge Fortescue’s prospects of success at this time because they will depend on the legal arguments the company files. A verdict “can turn on fine distinctions in the legislation,” he said.
Shares in Fortescue, founded by billionaire Andrew Forrest, rose 2.5 percent to A$4.91 at the close of trading in Sydney, compared with a 1 percent decline in the benchmark S&P/ASX 200 Index. (AS51)
‘Dodgy Mining Tax’
“Mr. Forrest has made it clear that he is staunchly opposed to the government delivering the Minerals Resource Rent Tax,” the office of Treasurer Wayne Swan said today in an e- mailed statement. “The government is determined to deliver the tax to help tackle these patchwork pressures, deliver tax relief for millions of small businesses and invest in critical productivity-enhancing infrastructure.”
Tony Abbott, head of the opposition Liberal-National coalition, has promised to scrap the mining tax if the Labor government is defeated in the election, scheduled for the second half of next year.
A challenge against the “dodgy mining tax was always inevitable,” Senator Mathias Cormann, the opposition treasury critic, said in a statement today.
Gillard’s Labor party trailed the opposition by 22 percentage points in a nationwide poll taken May 31-June 2 by Nielsen which had a margin of error of 2.6 percent. Her agenda has prompted criticism by business leaders ranging from BHP Chairman Jacques Nasser to Rio Tinto Chief Executive Officer Tom Albanese to the Australian Chamber of Commerce and Industry.
Miners in states with lower rates of royalties than other states will have to pay more federal tax, Fortescue said in its court filing. That would eliminate a state’s competitive advantage, the company said.
The federal tax will “have the effect of rendering illusory and inefficacious any determination by a state to differentiate itself from other states or countries,” Fortescue said.
The company plans to almost triple annual iron-ore output from its Western Australian mines to 155 million metric tons by June 2013.
The case is between Fortescue Metals Group Ltd. and The Commonwealth of Australia. S163/2012. High Court of Australia (Sydney).
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