Life getting harder for many despite mining boom

File photo / Derek Flynn

Life is looking good in the Pilbara and Kimberley regions of Western Australia's remote north, in Queensland's coal towns and in the other parts of Australia where the mining boom is spreading its largesse.

However, in the outer suburbs of Melbourne and Sydney, on the Gold and Sunshine coasts, and across vast tracts of the country, the future is less rosy.

A study of the country's regions shows that much of Australia is not only missing out on the boom, but is going backwards, or soon will be.

Employment, housing, disposable income and other measures of prosperity are pointing to struggle street for much of the country.

Mining is adding muscle to the dollar and sucking investment and resources away from many of the industries that provide most of Australia's jobs, creating the two-speed economy that even Treasurer Wayne Swan has acknowledged as a growing challenge.

The National Economics for the Local Government Association study has another name for it: "Dutch disease," a term coined to describe the way manufacturing and other industries were hammered by the discovery of North Sea natural gas in the 1960s.

Report co-author Peter Bain said high exchange and interest rates fuelled by the Australian boom were affecting construction suppliers and other sectors such as tourism, education and agriculture.

"The immediate effects on production are depressing enough, but the longer-term effects are serious since investment in maintaining and updating capacity is being skipped, product development and marketing is not taking place, and skills are being lost," he said.

"When the mining construction boom ends and mining industry employment falls back to the much lower levels required for job production, there will be great difficulty in generating replacement jobs and Australia will find itself short of jobs to employ the many immigrants brought in to provide labour for the mining boom."

The study's warning was supported this month by the National Australia Bank's latest survey, which said the continuing strength of the mining industry was in sharp contrast to weakness in retail, manufacturing, wholesale and construction.

The bank survey said that while conditions deteriorated for most industries last month, those involved in mining were boosted to reach their strongest in the survey's history, "suggesting Australia's two-speed economy is persisting".

It is a message that is having trouble making itself heard above the boom. Mining employs more than 600,000 Australians, produces about 48 per cent of exports, pays more than A$7 billion (just over $9 billion) in royalties, and contributes A$4 of every A$10 of profit earned by the nation's companies.

The most recent review of major resources development projects, released in November, identified a record A$132.9 billion, driving the hunt for labour that is now drawing record numbers of New Zealanders across the Tasman.

But the National Economics study holds warnings for Kiwi migrants lured by reports of labour shortages and high wages, but who under rules introduced in 2001 are not eligible for social security benefits, including unemployment and sickness benefits.

Region by region, the report details inequalities that have been steadily growing for the past five years - divisions it says will not only continue but possibly accelerate over the rest of the decade.

The tide-marks of the mining boom are stark.

They circle the Pilbara, Kimberley, Gascoyne and Goldfields regions of Western Australia, Mackay and Fitzroy Central West in Queensland and areas in other regions such as the Outer Hunter in New South Wales, where the boom is mainly confined to the inland and misses the lifestyle areas on the coast.

Much of the boom is stoked by mine construction, infrastructure and transport and, for the fortunate regions and cities such as Perth that support the sector, the medium-term prospects for employment, income growth and rising population are bright.

Production there will grow at a close to double-digit rates as mines expand, underwritten by continued investment and expansion in mine capacity.

As that investment tails off by 2015, it will probably be replaced by energy projects.

National Economics says that for most other regions the outlook is less optimistic.

Its report says that while most of the country will at first benefit from the boom, most will reach a point within the next five years where gains tip into losses.

A strong dollar will encourage imports and hit non-mining exports, high interest rates will cut investment outside resources, mining will suck up the skills needed by other industries, and interest in investing in anything but mining or energy will wane.

Analysis in Deloitte Access Economics-Arup's March "Investment Monitor" said mining accounted for 46 per cent of the value of projects reported in the March quarter.

A further 27 per cent was pumped into infrastructure such as transport, utilities and communications.

Manufacturing attracted less than 5 per cent of investment - and most of that was directed at metal products destined for resource projects.

A decade ago, investment in manufacturing had easily outpaced mining - attracting almost twice the amount directed to the resources sector - but from 2005 had slipped increasingly behind.

"Although businesses in other sectors are open to the thought of expansion, miners and related sectors are the ones spending with their ears pinned back," the Investment Monitor said.

The effect is already being felt, the National Economics study says.

"The boom has been conspicuously absent in Victoria, Tasmania, South Australia, much of NSW - including the outer suburbs of Sydney - and much of Queensland, including many of the suburbs of Brisbane and some of the non-metropolitan regions."

The report says the dark side of the boom has been felt most severely in Melbourne, but Sydney, Adelaide, southeast Queensland and the tourist-oriented lifestyle regions have all suffered.

The collapse of the tourism industry - sparked by the strong dollar and recession in important markets - has seriously reduced the hours of work available in Queensland holiday regions, while in other areas the blow has mainly been felt through limited growth in earnings.

In rural Australia, high exchange rates triggered by the mining boom are squeezing the profits out of the pastoral and agricultural industries, as well as manufacturing based on local raw materials.

Looming ahead is the aftershock of the boom, when investment cools and Australia needs to find work for the workers it imported to build the mines. Employment in many regions would have been better without the boom, the study said.

It says the boom will also aggravate income gaps and housing shortages. Australia's headline unemployment rate of 5 per cent, and predictions that it is converging across all regions, bears no resemblance to reality. "Over the past few years regional inequalities in housing and jobs have either stayed constant or increased. There is no evidence of convergence."

Many who lose their jobs will not be able to find new work.

Their prospects - especially in outer Sydney, Melbourne and Adelaide - will dim further as the blows to industries outside the mining sector hammer their ability to pay for housing.

In the places where affordable housing is available, job opportunities are declining.

But the study says the worst is not inevitable, provided the Government can get its policies right, as other countries have done.

Norway, which was affected far more intensively by its resources boom, had not needed to import labour and had emerged with greater manufacturing product, higher employment and higher per-capita productivity than Australia has managed.

The study says the average Norwegian family of four is indirectly richer by US$600,000 ($738,000) than the comparable Australian household and that the key to Norway's success is thinking ahead and planning strategies to ensure its people gained the best-possible benefits.