Now no one is saying the Commonwealth is a gold digger, but it clearly isn't messing with no broke diggers. Well at least that's not the intention of the Mineral Resources and Rent Tax (MRRT) which since 1 July applies to 30% of the taxable profit of all new and existing iron ore and coal projects in Australia. The taxing of companies and private entities is nothing new so what exactly is Fortescue Metal's High Court challenge all about?

The Australian Constitution provides that the Parliament can't make tax laws which would discriminate between States or parts of States and expressly prohibits federal taxes on State property.

Fortescue argues that the MRRT offends both of these restrictions and contravenes the constitutional right of States to deal with their own assets and property in a way they see fit (minerals are owned by the Crown until they're dug up).

The Queensland government has joined the challenge.

So will they win? Here are the main arguments for and against:

For the challenge

  • The MRRT discriminates between States by depriving resource-rich States of the right to encourage mining and attract investments based on the bounties of mining exploration.
  • Natural resources such as coal and iron ore belong to the States and the Commonwealth is unconstitutionally taxing those natural resources.

Against the challenge

  • Since the MRRT applies at the same rate to all States it is not discriminating between the States.
  • The MRRT is not a tax on minerals but a tax on profits and that is not unconstitutional.
  • The Crown owns minerals and the Crown means the Commonwealth not the States, there is therefore no tax on State property

The MRRT is estimated to generate over $13.4 billion in revenue over the next four years. Despite the fears that it will drive away investment and growth, many prominent industry figures argue that the same issues of sovereignty and regulation exist in North and South America with no effect on the attractiveness of those mining hubs.

And then there's the politics...

While the arguments against the tax have merit we're placing our bets on a loss. The High Court is generally protective of the Federal Government's taxing powers and we think it will uphold the MRRT. We'll keep you posted on how it all unfolds.

We do not disclaim anything about this article. We're quite proud of it really.