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Australia's dangerous economic divide Add to ...

From the peak of Radio Hill you can see the entire town of Newman, an isolated settlement that typifies the riches and challenges of Western Australia's runaway resource boom.

Resting atop the mineral-rich red soil of the Pilbara region, the flat town is windswept, sun-baked and dusty. On an average summer day, the temperature soars to nearly 40 C. A few lonely trees provide limited shade.

Living in this desolate place is shockingly expensive. The average rent for those without company-subsidized housing is $1,800 Australian ($1,774 Canadian) a week - pricier than New York, Tokyo or London.

Newman's exorbitant cost of living exemplifies Australia's "two-speed" economy: booming in the West - owing to soaring Chinese demand for commodities such as the iron ore mined here by BHP Billiton - 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.

Canadian resource-sector executives are watching with interest as Western Australian resentment gains political muscle, manifesting itself most recently in the June toppling of Australia's prime minister, an ousting caused, in part, by an ill-advised levy on mining company profits.

As the economic importance of resources increases and spawns new areas of influence, Canadian politicians are also taking notes. The politicization of Western Australia has a counterpart in the rising political influence of Canada's West, most recently demonstrated by Ottawa's surprise decision to block the proposed sale of Potash Corp. of Saskatchewan Inc. to BHP, after the provincial government under Premier Brad Wall opposed the takeover.

At a private lunch club filled with mining executives in Western Australia's capital of Perth, Mr. Yeates lays out a long list of Western grievances with the East, most notably that the resource sector is doing all the heavy lifting for the Australian economy.

While such complaints may have been ignored as mere grumbling in the past, the miners' sphere of influence is growing almost as rapidly as the value of their companies. Australia is living through a period of prosperity "which occurs maybe once or twice in a century," Reserve Bank of Australia Governor Glen Stevens said on Monday, and mining companies are the key drivers of that growth.

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.

With economic growth comes power, and the sector's executives are taking advantage of their new-found political influence to press their demands in Canberra.

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  • BHP Billiton Ltd
  • Updated June 28 4:02 PM EDT. Delayed by at least 15 minutes.

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