Discriminatory Taxation in Light of Fortescue: Its Implications for the Development of Northern Australia
| Published date | 01 March 2014 |
| DOI | 10.22145/flr.42.1.3 |
| Date | 01 March 2014 |
| Author | Anthony Gray |
| Subject Matter | Article |
DISCRIMINATORY TAXATION IN LIGHT OF FORTESCUE:
ITS IMPLICATIONS FOR THE DEVELOPMENT OF
NORTHERN AUSTRALIA
Anthony Gray*
ABSTRACT
In the recent Fortescue decision, the High Court made some interesting observations
regarding interpretation of the word 'discrimination' in the context of t he Federal
Government's power with respect to taxation in s 51(2) of the Australian Constitution.
Coincidentally, the Fede ral Government has commenced consideration of options for
the development of northern regions of Australia. Of course, one option would be to
introduce a variable taxation system to encourage businesses and individuals to b e
based, and/or invest, in northern Australia. This article considers possible
constitutional issues ass ociated with variable taxat ion schemes overt ly favouring
businesses and individuals based in the 'north', given the recent High Court decision.
INTRODUCTION
In the A ugust 2013 decision in Fortescue Metals Group Limited v Commonwealth,
1
the
High Court unanimously upheld the constitutional validity of the Federal
Government's Minerals Resource Rent Tax Act 2012 (Cth) (the 'mining tax'). This
outcome was expected by most constituti onal observers. Admittedly the la w was a law
with respect to taxation, supported by t he head of power in s 51(2) of the Constitution.
However, s 51(2) prohibits a Commonwealth taxation law from discriminating
between states.
2
The Court's reasons focused mostly on arguments that the law was
unconstitutional because its impact d iffered from state to state, given that it took into
account state royalty schemes, as will be explained further below. In dismissing this
argument, the High Court made some observations about the workings of the concept
of 'discrimination' in relation to the s 51(2) head of power.
Coincidentally, the new Federal Government issued a Green Paper in mid -2013
(whilst in Opposition) which explicitly discusses the possibility of personal and
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* Professor, University of Southern Queensland. Thanks to the anonymous referees and the
editing team.
1
[2013] HCA 34 (‘Fortescue’).
2
‘The Parliament shall, subject to this Constitution, have power to make laws for the peace,
order and good government of the Commonwealth with respect to taxation, but so as not
to discriminate between States, or parts of States.’
2 Federal Law Review Volume 42
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business tax incentives for northern Australia.
3
The previous Prime Minister promised
during the federal election campaign to create a Northern Territory economic zone,
featuring a proposed concessional taxation treatment of companies based in the
Northern Territory.
4
In other words, development of northern Austra lia, and
associated changes to the tax system, is clearly on the political agenda in Australia.
Quite apart from the public policy merit of these plans, these proposals raise
interesting constitutional questions. In pa rticular, any proposal to introduce
differential taxation arrangements in parts of Australia raises constitutional issues
because while the Commonwealth clearly has power to levy taxation pursu ant to
s 51(2), the Constitution generally forbids taxation that discriminates in terms of
geography, as we will see. There is sparse aca demic commentary on the scope of the
'discrimination' prohibition in s 51(2),
5
a gap that this paper will seek to address.
This article will explain th e courts' reasoning in the Fortescue Case, in particular its
comments about discrimination in the context of s 51(2). After so doing, it will consider
the wider ramifications of the Court's decision, and in particular the questio n of the
possibility of the federal government creating a concessional taxation zone covering
either (a) the Northern Territory or (b) northern Australia, given the co nstitutional
prohibition on discriminatory taxation. As always, questions of the constitutionality of
such measures are quite different from questions of whether the policies are sound or
desirable economically, or whether they will a chieve their objectives. These latter
questions are of course irrelevant to questions of constitutionality.
OUTLINE OF THE MINING TAX, AND ARGUMENTS AGAINST ITS
CONSTITUTIONALITY
Essentially, the mining tax involved an imposition on 'above normal' profits made by
miners.
6
Calculation of tax payable is based on mining profit, allowances and the
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3
The Coalition's 2030 Vision for Developing Northern Australia (June 2013). The Green Paper
suggests in relation to northern Australia that 'the efficacy and targeting of current
relocation incentives and personal and business tax incentives could be reviewed' in the
White Paper currently being prepared by the Government, due for release by September
2014. No further detail appears in the Green Paper.
4
This announcement, made in 14 August 2 013, suggested a concessional 20% tax rate for
companies based in the Northern Territory, compared with a current company tax rate of
30%:Ben Packham and Lauren Wilson, ‘Labor Pledges Lower Company Tax in New
Northern Territory Economic Zone’, Ben Packham and Lauren Wilson, The Australian
(online), 15 August 2013 < http://www.theaustralian.com.au/national-affairs/election-
2013/labor-pledges-lower-company-tax-in-new-northern-territory-economic-zone/story-
fn9qr68y-1226697739374 >
5
There is some literature on the concept of 'discrimination' in the Constitution more
generally: see, eg, Amelia Simpson, 'The High Court's Conception of Discrimination:
Origins, Applications and Implications' (2007) 29(2) Sydney Law Review 263; Leslie Zines,
'Form and Substance: Discrimination in Modern Constitutional Law' (1993) 21 Federal Law
Review 136; Glenn Patmore, 'Moving Towards a More Substantive Conception of the Anti-
Discrimination Principle: Waters v Public Transport Corporation of Victoria Reconsidered'
(1999) 23(1) Melbourne University Law Review 121.
6
Minerals Resource Rent Tax Act 2012 (Cth) s 1.10.
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