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June 01st 2010 print

Ray Evans

Rudd’s war on the States

What is missing so far from this debate are the constitutional implications of the proposal. If this tax becomes a reality the States will have been dealt such a blow that they might as well shut down their parliaments.

RSPT an attack on the federation 

There has been a great deal of comment on the impact which the Rudd Government’s proposed resources super profits tax (SFPT) will have on the mining industry in particular, and the economy more generally. 

What is missing so far from this debate are the constitutional implications of the proposal. If this tax becomes a reality the States will have been dealt such a blow that they might as well shut down their parliaments, and put a notice on the doors saying, “If you’ve got a problem – take it to Canberra”. 

It has been settled legal and constitutional doctrine in Australia, since before federation, that the Crown was the owner of all minerals found beneath the surface, and that the various colonial governments exercised the royal prerogative in the exploration for and development of any mineral deposits. 

So the doctrine of Crown ownership, in the right of the States, was firmly entrenched at the time of federation, and at no time during the constitutional debates of the 1890s did anyone suggest that Crown ownership of minerals should be transferred to the new Commonwealth of Australia. With good reason. Any serious attempt to carry out such a proposal would have sunk the whole federation enterprise. 

So Australia has Crown ownership of minerals, and the States are the landlords of all mining developments, and are responsible for the various legal regimes which govern exploration activity. 

One of the reasons why Australia, so far, has been very successful in exploration and mining is that the States compete with each other to provide efficient and fair exploration regimes. After discovery of an ore body the State (as the owner of the newly found minerals), is anxious not to impose a royalty regime which will deter future exploration and discovery. On the contrary. States which are anxious to develop exploration and mining within their boundaries often offer attractive royalty regimes in the early years of a project in order to encourage the growth of the industry. 

We have seen in recent decades Canberra usurping more and more of the traditional powers and responsibilities of the States. They have been assisted in this by a compliant High Court. But if Canberra can simply push the States aside as the owners of minerals, and effectively nationalise (through their 40 percent share of profits and losses) the industry, then the Constitution is a dead letter. 

Western Australia and Queensland are, today, potentially the big losers in this contest. But South Australia, with the huge expansion of the Olympic Dam project now in jeopardy, and with the very reasonable expectation of major new discoveries in the pipeline, will be tomorrow’s big loser. 

What can the States do in the face of this breathtaking assault on their constitutional prerogatives? There are a number of options they can exercise, none of them painless or helpful, except perhaps in the very short term. But as Samuel Johnson observed “Depend upon it sir, when a man is to be hanged in a fortnight it concentrates the mind wonderfully.”, and the States are now facing an imminent hanging. 

In the meantime however, the States, as the owners of the minerals, can impose whatever royalty regime they wish. They are of course constrained by the fact that any new activity will vanish if they behave unconscionably. But if the miners are to be relieved of all profits above 6 percent by the Commonwealth, there is nothing to prevent the States from imposing a royalty which does exactly the same thing, before the Commonwealth gets its hands on the money. Going further, the States can nationalise the mines and hire the current owners as managers – for a fee. Thus any attempt by the Commonwealth to tax the States on account of their mining revenues will call into play Section 114 of the constitution which prohibits any such tax. 

The attempt by the Rudd Government to grab a huge sum of money from the mining industry and to usurp the sovereign prerogatives of the States in order to do so, makes Rex Connor’s attempts to run the mining industry by requiring every shipload of product which left Australia to have his signature on an export permit, seem pretty small beer. But Rex Connor’s endeavours contributed greatly to the collapse of the Whitlam Government. The Labor ministers of 2010 should study carefully the events of 1975, and learn the lessons contained in that story.