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Australia's dangerous economic divide Add to ...

Topping the list of Western complaints is the infamous mining tax introduced earlier this year by the Labour government of former prime minister Kevin Rudd.

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.

In a move that emboldened the increasingly politicized resource sector, Mr. Rudd was replaced in June by rival Labour Party member Julia Gillard, who narrowly escaped defeat in a recent election. Now Ms. Gillard has been left to try to govern Australia's first minority government since the 1940s.

"We've never been the catalyst for turfing a prime minister," Mr. Yeates says with a smile.

What rankles Mr. Yeates and other Western Australians so much is not only the lack of investment by Canberra in Western Australian infrastructure, services and health care, but also the attempted direct interference with the state's way of life.

Australia's West is fiercely independent and always has been. It was the last to join the federation. It recently decided to opt out of the national daylight savings time program. Until the recent elections in Victoria, Western Australia was the only state to have a conservative, Liberal party government. Residents here once had a vote on seceding from Australia - a movement that is once again gaining traction.

While secession is highly unlikely, Western Australia has certainly found its political voice, thanks to the resource boom.

"We need the central government to create well-thought-out policies and certainty," says Joe Belladonna, the chief financial officer of nickel miner Western Areas NL, which is listed on the Australian and Toronto stock exchanges.

On the day the original mining tax was introduced, Western Areas' stock was hammered and Mr. Belladonna is concerned that further ill-considered government policies aimed at funnelling more revenue from the West will deter potential investors.

"While the minerals are locked in the country, [the]investment to exploit them is not," he says.

The resource sector is expected to account for more than half of the $123-billion (Australian) in private business spending forecast over the coming year. Rio Tinto and BHP are spending tens of billions to expand their iron-ore operations in the Pilbara region, and Chevron Corp. is the lead investor building a $43-billion liquefied natural gas project off the coast of Western Australia - the country's largest-ever resource project.

But rising economic and political influence also brings a slew of new challenges.

If the central government chooses to cater policy and spending decisions to the resource-rich states, it risks leaving behind the services and manufacturing-driven regions of New South Wales and Victoria. The ill effects of such a policy shift will be compounded if and when commodity demand subsides.

More pressing are immediate concerns about wage and price inflation in the resource sector spilling over into the rest of the country.

The commodity boom has pushed the Australian dollar's value above both the Canadian and U.S. currency, boosting purchasing power but also harming domestic manufacturing. A series of interest rate hikes by Australia's central bank aimed at containing inflation is starting to squeeze borrowers and home owners in the Southeast. Although he has signalled that further rate hikes won't come until next year, Glen Stevens, Australia's central bank governor, said this week he does not expect inflation pressures to subside any time soon.

"Mining is putting enormous pressure on the rest of the trade market," said John Freebairn, an economics professor at the University of Melbourne.

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