We're all hearing in the news that the Australian economy is booming right now. Yet, at the same time, we're hearing that industries are struggling. Why is it that we have this seemingly contradictory newsfeed coming into our minds all the time? I have had a few chats with financial advisors I have consulted with and some accountants from small and large firms and the conclusion might seem almost too simple.
To be rather blunt, it's because the mining boom is having a great impact on Western Australia, South Australia, the mining areas of Queensland, and much of the top end. Down here in Victoria and New South Wales, as well as our close-by neighbours in Tasmania, ACT and southern Queensland.
The mining boom has delivered an enormous benefit to our nation in our taking the minerals from the ground and selling it to the world to make stuff. These are amazingly profitable business opportunities that much of the Australian economy sector misses out on. The "trickle down" effect doesn't have a "trickle across" parallel.
Why is this? Well I could draw up a bunch of conclusions, but the reality lies in three main contributors.
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| Salaries have stagnated in the East, whereas have risen tremendously in the West. Source: payscale.com |
I think it's an obvious thing that the East Coast is different to the West Coast: the sun rises in the East, sets in the West, our accents are different, we both are multicultural, but our blends are made up of different countries... the list goes on. But the biggest difference right now is that there are rich internationally demanded mineral resources in the West that do not exist in the largely populated areas of the East.
While having different backgrounds, our staples essentials are basically the same, right? We all need food, water, electricity, gas, clothing and community. But our selections of these vary drastically due to our different types of population. On average, men in Perth earn $78,057, meanwhile Sydney men are earning $73,322, and Melbourne men are a further $5,000 less than Sydney's, an inverted trend from a decade ago where Melbourne's earnings were greater than Perth's, and both were behind Sydney, all of which is a direct correlation of the mining boom causing a boom on the West Coast, yet having little effect on the East.
So you add money to the mix, but take the different heritages from which the West draws itself, and it has developed itself into a unique lifestyle which isn't similar, nor can it be copied or even superficially simulated on the East. And that's a good thing.
The West is - unlike the East - Primarily Self Sufficient
Some time ago, if you wanted almost anything on the West Coast, you had to source it externally and rates for just about everything was higher, because skilled labour was harder to find and materials would traditionally be imported via Sydney, Melbourne or Brisbane.
No so any longer, now that Darwin and Perth themselves have become vital ports for international trade. Additionally, as the mining boom has taken more and more effect, the manufacturing and distribution industries have moved westward in order to cash in on the boom and to provide a gap in the market.
In the East, the only resource that was ever lacking, by comparison, was the natural minerals, yet it overcame this dearth by being essential to the West by all of its commerce. As the businesses that Perth and the West once relied on set up or galvanise operations in the West, the demand on the East diminishes.
Sydney is SO 2000
Okay, that is a bit harsh, since Sydney will never, in the foreseeable future of Australia's tourism, slip behind any other Australian city in bearing the throne of the spectacle of our tourist hotspots. But its margin has slid from the remarkable lead it always had on Melbourne, but even more remarkably, Perth and many places in the West have risen at swift rates. This would be largely due to those who have moved to the West, either from around the world or from within Australia, have their family and friends visit and this has an immediate effect, but additionally, the extra money the state has earned have been directly invested into some clever and very well targeted marketing campaigns to those who would benefit from travelling and visiting the western regions of our nation. Sydney's mantle is still magnificent, but is a bit passé, when Perth is considered, internationally, to be a breath of fresh air.
Where to from here?
Well, realistically, the East has always been self sufficient and right now it's rocky because it's the Greece whereas the West is the Switzerland, and unless the West can bail out the East, there's going to be some hard times ahead. Is a mineral resources tax the right way to go about it? I don't think so. The reality is that a tax is just simply that, and it's discouraging to investors wanting to gain financial benefit from mining investment.
An alternative would be to introduce mining investment leverage incentives, that co-opt a mining dollar towards a nationally accredited investment pool, which benefits the nation in its core, not in a locally skewed geo-demographic. Perhaps this would be from re-dispersion into Superannuation funds, perhaps another way. I don't know the answer because, realistically, if there was a conclusive way of doing this that was infallible, it would have already been done by now.
But from what I've discussed with my colleagues, it seems better than the alternatives.
What are your thoughts?
It sounds to me like Australia is being reverted back to colony status. When a nation's wealth is founded in low-margin industries, it will end up specializing in being poor (and easy to control).
ReplyDeleteThe government should look into what the exported raw materials are being used for, then create incentives to process those materials nationally (with emphasis on the east). They should fund and enhance those incentives by slapping a decent export tax on those raw materials.
If the standing tariff and fee structure on these activities makes them uncompetitive internationally, there should be an effort to fix that. This is not a problem that is difficult because it is confusing, it is only difficult because of political arrangements.
The same thing is happening in the US. Industry is prosperity, and we are watching both decline in lockstep.