The Federal Government faces a new hurdle over its goods and service tax, as key elements of the deal negotiated with the Australian Democrats may be unconstitutional. The disputed part of the deal, relating to the two-tiered agreement over diesel rebates, is central to the compromise package. Its aim was to preserve revenue, without adding to the Democrats' concerns over the environment. The agreement to tax fuel at different rates was intended to separate genuine farm and regional use from city-based vehicles, but it could breach the constitutional requirement that all states be treated equally under taxation laws.