[LINK] "Australia’s dangerous economic divide"

[rfmcdonald]

According to the Globe and Mail's Andy Hoffman, just like Canada Australia is seeing an economic divide emerge between its resource-rich peripheries (northern and eastern Australia there, western Canada and Newfoundland and Labrador here) and its more densely populated, more urbanized, and more historically central "core."

Australia [has a] “two-speed” economy: booming in the West – owing to soaring Chinese demand for commodities such as the iron ore mined here by BHP Billiton (BHP-N89.351.551.77%) – and struggling in the East. The resource boom in Western Australia has put the country at risk of contracting a classic case of what economists call Dutch disease, creating a commodity-powered currency that punishes industry outside of the mining and oil and gas sector. It has also spawned a tricky monetary policy dilemma for Australia’s central bank as it tries to rein in resource-driven inflation while at the same time creating conditions that foster economic growth in the rest of the country.

But Western Australians have little sympathy for Eastern woes. Inadequately funded infrastructure, health care and education in the West is fuelling contempt for the economic and tax policies of the central government in Canberra and the lifestyle of Australia’s southeastern residents, such as those in Sydney and Melbourne.

“We make all the money and they spend it,” says Rick Yeates, a mining-sector veteran and the head of Middle Island Resources Ltd.

Australia’s growing economic schism reads like an extreme version of the increasing friction between the resource-focused provinces of Canada’s West and the manufacturing and financial services-driven economies of Ontario and Quebec. Down Under, the global commodity boom has created a dangerous economic divide.

[. . .]

Western Australia barely felt the tsunami of ill effects caused by the global financial crisis and is expected to continue leading the Australian economy’s growth in the near term.

According to Canberra-based Access Economics, growth in regions endowed with minerals and oil and gas will far outstrip growth in the country’s more populous states next year.

Western Australia is expected to enjoy gross state product (GSP) growth of 4.9 per cent in 2011. Northern Territory GSP is forecast to grow at 4.3 per cent and Queensland’s at 3.9 per cent. Meanwhile, New South Wales will grow by just 2.9 per cent and Victoria will grow by 3.6 per cent, slightly ahead of Australia’s overall growth forecast of 3.5 per cent.

It looks like the efforts of former Australian Prime Minister Kevin Rudd to introduce a mining tax that wold have had a redistributive effect on mining wealth--similar in intent to the hugely controversial National Energy Policy of Pierre Trudeau in 1980--brought him down.

Australia’s mining sector and the state government of Western Australia went apoplectic over the proposed levy, which originally aimed to tax 40 per cent of the profits from Australian mining companies and shift royalty payments away from state governments.

In response to an unprecedented lobbying effort led by the largest mining companies operating in Australia, including BHP, Rio Tinto Ltd. and Xstrata PLC, the central government was forced to back down, reducing the tax to 30 per cent of profits and limiting it to major iron ore and coal miners.

Still, the botched attempt to extract more government revenue from the mining sector, which complains that Canberra’s investment in infrastructure in Western Australia and other isolated resource areas has been appalling, cost the prime minister his job.