OPINION: by Professor David Flint AMNews Weekly
Is Rudd's resources super profits tax constitutional?
, May 29, 2010
In a column I posted on April 10, before the release of the long-awaited Henry tax review, I said that the review was expected to propose the replacement of state mining royalties with a federal resource rent tax. I said that the model was likely to be the Hawke Government's offshore petroleum rent tax.
The proposed new resource super profits tax, if passed by the federal parliament, will most likely be the subject of constitutional challenges. My comment here is principally concerned about the constitutional aspects of the new tax.
The federal government unusually released both the report and its response simultaneously. And this was released not to parliament but to a media lock-up. The usual approach in a Westminster democracy is to table the report in parliament and to allow for consultation and discussion first. The Opposition was also given four hours' notice in the lock-up. This is not the way to treat the parliament.
The government's theme is that the resources belong to the people of Australia, that is to the Crown in the right of the Commonwealth.
That is surely wrong. The minerals are certainly owned by the Crown, but not the Crown in the right of the Commonwealth, except in relation to the territories. The minerals are owned by the Crown, but it is the Crown in the right of the states. It is thus for each state to be concerned to determine the royalties payable on minerals extracted from that state.Tax or acquisition?
Both the Commonwealth and states enjoy a power to tax, although the High Court has seriously limited the states' power to tax goods. The legal question is whether this new resource rent tax is actually a tax.
Incidentally, it is curiously called a resources super profits tax (RSPT), although it will impose a 40 per cent tax on any profit in excess of the long-term bond rate. The model for the proposed tax is the way offshore oil fields are now taxed.
In 1973, the Whitlam Government, relying on a UN Treaty, seized all offshore assets from the states and vigorously exploited them. The High Court upheld this under the external affairs power.
Now a well-structured resource rent tax is an efficient tax, a subject on which I once wrote a paper for an academic journal.
In an opinion piece in The Australian
(May 7, 2010) Dr Craig Emerson, the federal Minister for Competition Policy and Small Business, tells how the Hawke Government learned that the states were not prepared to hand over their royalties into a subsumed general resource tax. The Hawke Government then replaced the offshore crude oil levy with a resource rent tax.
Dr Emerson does not mention two important differences between the Hawke tax and the Rudd tax. First, the Hawke resource rent tax applied only to new fields. The proposed Rudd tax applies to both new and existing ventures. (The government promises generous transitional arrangements.) Second, the Hawke resource tax was over resources owned by the Crown in the right of the Commonwealth. The Rudd onshore tax would be on resources vested in the Crown in the right of the states.
Now the miners, including Andrew Forrest and Clive Palmer, are alleging that the proposed onshore tax is actually a nationalisation of 40 per cent or more of their mining rights granted by the states. They say that with corporations tax they will be effectively paying up to almost 60 per cent tax. The new tax will allow for exploration costs and losses on unsuccessful ventures as though the federal government were a co-owner.
But this will be after heavy initial costs and losses have been incurred in unsuccessful ventures. It could be said that the government is in effect cherry-picking the most successful ventures, and only when they are in a profitable phase. This was not the approach of the Hawke Government. In reply, the Rudd Government promises generous transitional arrangements.Constitutional issues ...
There are three important questions which will be asked if legislation is passed to impose the tax. There would be others, including ones about the power to tax profits on minerals vested in the Crown in the right of a state and the effective capping of state royalties. (The legislation is not to be introduced until late 2011, that is during the next parliament.)
The first question is, does this constitute an acquisition, rather than a tax?
If it is an acquisition, the second is whether this is for a purpose for which the Commonwealth has power to make laws. And, third, if it is an acquisition, is it on just terms? There will probably be different arguments in relation to existing mines compared with new ventures.
At least we know the answer to the third question.David Flint AM is a former law professor at the University of Technology, Sydney. He is currently national president for Australia of the World Jurist Association, a body devoted to upholding the rule of law. His comment first appeared as an opinion column of the national convenor of Australians for Constitutional Monarchy, at www.norepublic.com.au