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Queensland Backs Fortescue Challenge on Australia Tax

July 08, 2012

Australia’s resource-rich Queensland state said it will support Fortescue Metals Group Ltd. (FMG)’s bid to sue the federal government in the country’s top court over a plan to tax iron ore and coal company profits.

“We’ll certainly have a go at intervening in this case,” Attorney General Jarrod Bleijie told Australian Broadcasting Corp. radio today. While cases in the high court are difficult to win, Queensland received legal advice that the Mineral Resource and Rent Tax, implemented July 1, may be unconstitutional as it discriminates between states, he said.

Prime Minister Julia Gillard, who is meeting Queensland Premier Campbell Newman in Brisbane today, needs revenue from the tax as she bids to turn the budget to surplus by next year, when she’s due to hold an election that polls show she’s on course to lose. Her minority Labor government’s agenda has drawn criticism from mining companies including BHP Billiton Ltd. (BHP) and Rio Tinto Group and resistance from the leaders of the four states out of six ruled by the Liberal-National opposition.

“There’s a stronger political game being played here than a legal one,” Michael Adams, dean of law at the University of Western Sydney, said in a phone interview today. “It’ll be very hard for Queensland to show it’s been unfairly discriminated against.” Adams said the legislation appears to have been carefully crafted to withstand constitutional challenges and seems to be “rock solid.”

The tax will reap about A$10.6 billion ($10.8 billion) within three years from Fortescue, BHP, Rio Tinto and other mining companies, according to Treasury estimates in October.

Swan’s Defense

The challenge “will try to stop the Gillard government spreading the benefits of the mining boom to hundreds of thousands of Queensland households and small businesses who aren’t in the fast lane” of the nation’s economy, Treasurer Wayne Swan said in an e-mailed statement today. He described the state’s bid as “futile.”

Western Australian Premier Colin Barnett decided against joining Fortescue’s challenge as it was unlikely to be successful, Swan said.

Fortescue, the nation’s third-biggest iron-ore exporter, is seeking a ruling declaring the tax invalid because it discriminates between states, curtails their sovereignty and restricts their ability to encourage mining, the Perth-based company said in a court filing on June 22.

Newman, a former army lieutenant, lead his conservative Liberal-National Party to victory in March elections after pledging to cut the resource-rich state’s unemployment rate to 4 percent from 5.7 percent and restore its AAA credit rating. Labor’s defeat left Gillard with allies governing in just the two smallest of the nation’s six states.

Abbott’s Pledge

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.

Gillard’s agenda, which includes a new tax on carbon emissions that will help fund cash handouts to lower- and middle-income voters, 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.

Labor’s primary vote fell 1 percentage point to 30 percent, while support for Abbott’s Liberal-National coalition increased 2 points to 46 percent, according to a Newspoll published in the Australian newspaper on June 25.

Miners in states with lower rates of royalties than other states will have to pay more federal tax, Fortescue said in its court filing last month. That would eliminate a state’s competitive advantage, the company said.

‘Illusory, Inefficacious’

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.

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.

The case is between Fortescue Metals Group Ltd. and The Commonwealth of Australia. S163/2012. High Court of Australia (Sydney).

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editors responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net


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