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Challenge to Mining Tax Must Be Heard: WA Mines Minister

The Australian Federal Government is facing one of its biggest fights over its controversial mining tax, after one of the country’s biggest iron ore miners lodged a challenge against the High Court against the legislation.

A driver inspects an earth mover at Fortescue Metals Group Ltd.'s Cloudbreak iron ore operation in the Pilbara region of Western Australia.
Bloomberg | Getty Images
A driver inspects an earth mover at Fortescue Metals Group Ltd.'s Cloudbreak iron ore operation in the Pilbara region of Western Australia.

Fortescue Metals is claiming that the tax, which is a nominal 30 percent levy on iron ore and coal profits over 75 million Australian dollars ($72.8 million), is unconstitutional.

The Government of Western Australia’s Minister for Mines and Petroleum Norman Moore tells CNBC it is important that the High Court hears this case, as the Gillard Government is trying to over-tax the miners, which already pay royalties to the State governments.

“I think it’s important to make sure that if this tax is in any way a royalty on minerals owned by the states then that needs to be identified, and we need to make absolutely certain that the tax is in fact constitutional,” Moore told CNBC Asia’s “Cash Flow” on Wednesday.

Moore says that if the tax is an additional royalty on top of what iron ore and coal miners already pay to the State governments, it is not legal.

Under the Australian constitution, resources belong to the states in which they are mined, not by the Commonwealth.

The Gillard Government is hoping to raise around A$6.5 billion from the mining tax over the next two years. But according to UBS estimates, mining companies will pay just A$3.2 billion dollars during the same period.

Moore says if the tax doesn’t raise as much money as the Federal government is hoping, it could try to extend the reach of the tax.

"The concern around here is that he may decide to extend it to other minerals like gold, nickel, alumina. And if that is the case, it will be even more catastrophic for Western Australia,” he said.

He adds that this is a greedy move by the Gillard government, as it tries to take advantage of the good times the iron ore sector is currently experiencing.

The respective iron ore and coal rich states of Western Australia and Queensland are the main losers from the tax as concerns that the legislation, coupled with the global slowdown, has prompted companies to rethink investment in major resource projects in the states.