• Bloomberg


South Australia, a rust belt state that’s 60 percent desert, is staring into the abyss.

It is grappling with the highest unemployment in the country and a steady outflow of people to other states. And in 2017, General Motors Co. will close its Holden factory, ending more than 50 years of automaking in the Adelaide suburb of Elizabeth, where 1 in 3 are already without work.

Options for state Premier Jay Weatherill to stem the decline are dwindling and he’s looking at all of them, even the possibility of using the state as a dump for the world’s nuclear waste.

Perhaps more than anywhere else in the country, this state in the heart of the continent epitomizes the hard choices Australia faces in the aftermath of its 10-year mining bonanza.

“They know there’s a crisis and they even know the date on which it’s going to arrive,” said Craig Emerson, a former trade minister who convened a National Reform Summit last month to try to spur lawmakers into action on the national economy. “It’s like a laboratory, what’s going on over there.”

South Australia gained little benefit from the mining boom that enriched the mineral-rich states around it. Instead it suffered from the side effects of a soaring currency and rising wages. Weatherill estimates 13,000 jobs are at stake in the automotive industry.

Weatherill announced in February a royal commission to look at the role the state should play in the nuclear industry — from mining to enrichment to energy generation and waste storage. The commission will make its recommendations by May 2016. The International Energy Agency has estimated nuclear generation capacity could rise 60 percent by 2040, and the cumulative amount of spent nuclear fuel generated, including high-level radioactive waste, could more than double over the period to 705,000 metric tons.

No site has been chosen for the storage, but two thirds of the state sits on a crater that is as much as 3.3 billion years old.

South Australia’s nuclear history dates back to the 1950s and early 1960s, when the British conducted atomic tests at Maralinga in the northern desert region, which is also home to the current Olympic Dam uranium mine.

Outside of the nuclear option, Weatherill prevailed on the national government to build naval frigates in his state and is pressing to service and undertake some construction of a new generation of submarines. A Japanese consortium is among the top contenders to build some of the subs, but has irked local suppliers by not discussing any possible collaboration.

Following the announcement of Holden’s departure, the state government pledged to try to secure 10,000 more jobs in the defense industry by 2020.

The sense of urgency in South Australia isn’t reflected in the national parliament.

The central bank’s limited policy ammunition — interest rates are at a record-low 2 percent — prompted it to join business and unions in urging the government to retool a dated tax system, intensify competition to boost productivity and free up the labor market.

Households have amassed record debt, wages growth is at recession levels, and national income is declining as the price of exports falls.

Second-quarter gross domestic product rose just 0.2 percent, saved from a contraction only by an uptick in defense spending.

“Weak,” “surprised on the low side” and “well below trend” were the verdicts of economists at Commonwealth Bank of Australia and Westpac Banking Corp., the country’s biggest lenders. Treasurer Joe Hockey said the result showed the economy “is growing well” and the government’s economic plan “is working.”

Former Treasury Secretary Martin Parkinson warned last month that falling national incomes mean the country faces the equivalent of a recession in the next decade unless it embraces change.

“Unless we actually grab this challenge by the horns and really get concrete about what are the priority issues, we are actually going to find ourselves sleepwalking into a real mess,” he said.

Yet the polarized national parliament has stymied major reforms.

The Labor Party’s proposal to tighten taxation of private pensions for the wealthy was quashed by the ruling Liberals. When the government suggested the 10 percent rate of the goods and service tax might need to rise, Labor was against it.

In South Australia, they have Holden to help concentrate their attention on the future.

No symbol of decline could be more potent than the demise of GM’s factory in the state. Elizabeth, where it’s located, was established in the 1950s to allow more people to live in South Australia and facilitate the state’s industrialization. The Holden factory was completed in 1962 and a year later, Queen Elizabeth II, after whom the suburb was named, visited and toured the plant.

Holden’s Commodore sedan was the country’s best-selling car for 15 years until 2011. Now the closure of the factory, and decline of Elizabeth, herald the deindustrialization of South Australia.

Filling the gap will be daunting. The last car plant closure in the state — Mitsubishi Motors in 2008 — triggered the biggest annual exodus of people to other states in 12 years. South Australia has had a net migration to other states each year since 2002.

Emerson, an economic adviser to Prime Minister Bob Hawke during the reforms of the 1980s, said Australia’s culture and political system tend to deter change until it’s inevitable.

“We tend not to respond until there is a crisis,” he said. “And then we’re pretty good at it.”

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