The Victorian Treasury and the Smelter Reduction Amount (A) 2006-38.1

In 1984, the State Electricity Commission of Victoria (SECV) entered into two Electricity Supply Agreements (ESAs) with aluminium producer Alcoa. The idea of the ESAs was to supply to Loy Yang B power generator with a long term customer and ensure Alcoa’s ongoing presence in regional Victoria. Low aluminium prices since that point led to a considerable shortfall that the Government then sought to recover by introducing the Smelter Reduction Amount (SRA) in 1997. This was a levy applied to the wholesale price of electricity which was collected from electricity retailers who ultimately recouped the cost from end-users. TASCO, a major electricity consumer and one of Alcoa’s main competitors, was opposed to the SRA, which it considered to be a government subsidy to Alcoa. In June 2003, the company lodged a writ in the High Court claiming the levy was an excise, and therefore in direct contravention of the Australian Constitution. Realising the significance of the claim, the SECV handed over the case to the Department of Treasury and Finance.

This four-part case describes the DTF’s confidential working group to manage a constitutional tax case and the litigation potentially raising Commonwealth-State and revenue policy issues and allows students to follow each phase of the case and discuss a potential course of action. Part A gives background information, including of the SECV, the SRA and TASCO’s claim to the High Court.

• part B describes DTF’s two-pronged approach to addressing the challenge: to rescind and replace the STA while continuing to defend the case.
• part C describes the five short-listed proposals presented to the Solicitor-General and is useful for class discussion of the viability of each.
• the Epilogue describes the outcome of the DTF working group’s decision and reflections on the project from its leaders.