Lawyers for the Federal Government have accused WA of raising royalty rates to "cash in" on soaring iron ore prices in an attempt to undermine the State's argument against the mining tax.
Commonwealth Solicitor-General Justin Gleeson also told High Court judges that if they agreed with mining magnate Andrew Forrest that the minerals resource rent tax was unconstitutional, income tax deductions would come under a cloud.
The second day of hearings in Canberra was dominated by lawyers for the WA, Queensland and Commonwealth governments putting their arguments.
Mr Forrest's Fortescue Mining Group launched the case, claiming the MRRT discriminates between the States because a miner's liability is determined after royalties.
Royalty rates vary from State to State, with a project paying lower royalties liable to pay more mining tax, and vice versa.
WA Solicitor-General Grant Donaldson told the court that this effect of the MRRT hampered a State's ability to discount royalty rates as an incentive to mining companies to develop mines and build infrastructure and townships.
But Mr Gleeson later told the court it was not significant the MRRT had cost States this bargaining power, saying there were other avenues to aid mining companies.
Mr Gleeson said Mr Forrest's legal team was focusing on just one element - royalties - in the formula used to calculate mining tax liability when there were other allowances mining companies could claim that affected how much tax they paid.The hearing is expected to finish today.
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