High Court justices have cast doubt on a key plank of Andrew Forrest's constitutional challenge to the mining tax as hearings opened yesterday.

Lawyers for Fortescue Metals Group spent much of the day arguing that the minerals resource rent tax is unconstitutional because it discriminates between the States on taxation grounds.

But they appeared on stronger ground with their claim the MRRT was a "crude form of control" by Canberra and hampered the States' ability to discount royalties to encourage mining development.

Fortescue has not paid a cent of the mining tax but the company launched an eleventh-hour High Court challenge last year on June 22, just days before the tax commenced.

Counsel for the company, David Jackson, told the court the heart of Fortescue's argument was a miner's MRRT liability was levied differently in each State because the States set different royalty rates.

As royalties were deductible against a company's mining tax bill, a lower royalty rate meant a company paid more MRRT, and vice versa, despite section 51 of the Constitution requiring Commonwealth taxes to be imposed equally across the States.

But several justices appeared sceptical about this, pointing out to Mr Jackson that companies were able to claim a range of deductions that reduced what they paid in company tax.

Justice Kenneth Hayne cited how States set different rates of workers compensation premiums paid for by companies.

The justices did not quiz Mr Jackson as much about a second constitutional argument. He said the mining tax curtailed a State's ability to encourage the development of mines by discounting or waiving royalties because this would result in a corresponding increase in MRRT liability.

The hearing got off to an amusing start when WA Solicitor-General Grant Donaldson unsuccessfully tried to have WA budget papers, 1960s parliamentary speeches and extracts from company agreements between miners and the State Government added to submissions to show WA had a lot of iron ore deposits and mining was crucial to the economy.

Chief Justice Robert French, a West Australian, replied drolly: "We've worked out that for ourselves."

The West Australian

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