AUSTRALIA is fracturing sharply into two economies. Mining investment boomed in the December quarter, but investment in the rest of the economy shrank even more sharply above all, in Victoria.
In a stunning development, the Bureau of Statistics reports that mining companies are now investing more money than all other sectors of Australian business combined. A decade ago, mining accounted for just 20 per cent of business investment.
The boom is confined to just two states, with 86 per cent of mining investment going into Western Australia and Queensland, primarily to mine natural gas, iron ore and coal.
Victoria is taking a battering. Business investment in the state in the December quarter was down 7 per cent from a year ago. Companies' investment plans for the next 18 months have shrunk 10 per cent from this time last year.
Other new figures yesterday showed home building approvals remained in free fall in January, plunging 25 per cent in Victoria year on year, and 17 per cent across the nation.
The one bright spot for Victoria in yesterday's figures was that non-housing approvals were bumped up by final approval being given to the $1 billion Victorian Comprehensive Cancer Centre in Parkville, and two large retail/wholesale centres.
On current plans, the divide between mining and the rest will become even sharper over the next 18 months. In 2012-13, if companies' plans are realised, 70 per cent of all business investment in Australia will be in mining, with the rest of the economy going backwards.
Similarly, 72 per cent of all business investment planned for 2012-13 would be in Western Australia and Queensland. Just 25 per cent would be in the south-eastern states.
The deep fracturing raises serious problems for other industries, reflected in their shrinking investment plans. Commonwealth Bank chief economist Michael Blythe estimated that to allow the mining industry to meet its goals without sparking inflation, growth in the non-mining economy must be kept to 1.5 per cent a year.
The fracturing also raises problems for the Labor government, which has 60 of its 72 House of Representatives seats in the south-east.
But Treasurer Wayne Swan described the investment figures as a "reminder of the strength of our economic fundamentals".
On initial estimates, the bureau reports, mining companies plan to increase their investment in 2012-13 to $120 billion 52 per cent higher than their original forecast for 2011-12.
But investment plans for all other sectors combined are just $53 billion, 5 per cent less than this time last year.
The prospects for New South Wales and South Australia are also grim. Businesses now plan to invest just $51 billion in the three states in 2011-12, down from $54 billion in the same survey last year.
