Adele Ferguson in the Sydney Morning Herald (See you in Court) notes the Queensland Government may join a High Court challenge against the mining tax:

A letter from mining billionaire Andrew Forrest to the Prime Minister reveals continuing dissent about the mining tax may spill over into a High Court challenge, writes Adele Ferguson.

The Gillard government’s credibility is about to take another battering as one of its more complex and ad hoc tax reforms – the minerals and resources rent tax – faces the threat of a constitutional challenge in the High Court.

Billionaire Andrew Forrest’s Fortescue Metals is expected to be a party to mounting a constitutional challenge, with the West Australian, Queensland and recently elected NSW governments odds-on to join any claim.

A High Court challenge against the tax may well succeed, as the resources in the ground are technically owned by the State Governments who grant the mining leases, and arguably they have exclusive right to any royalties or taxes relating to the extraction of the resources.

On the other hand, over the last couple of decades the Hight Court has been reluctant to knock back Commonwealth legislation and has engaged in expansive readings of the Commonwealth’s powers, particularly the corporations power, which incidentally was used by the previous Government to implement Work Choices. In other words, it’s not a certain win for the miners, and no doubt the Commonwealth has some very good legal advice on its side.

While constitutionally the mining tax could be ok, whether it’s ok from a public policy point of view is another thing entirely. Twiggy Forrest, in his letter to the PM, accurately identifies one of the major problems with the tax:

“The tax base will be unreasonably narrow being focused on 320 taxpayers in two resource areas: coal and iron ore … It will be a volatile tax subject to huge fluctuations depending on international commodity prices (making it unsuitable to fund ongoing Budget commitments your government has made such as reducing company tax and funding increased superannuation).”

As a former Treasury officer, it pains me to say that the Treasury let the Government down when it sold it the original resources super profits tax, but didn’t give it the evidence or analysis it needed to nail the case.