Victoria has become Australia's most divided state as the economic fortunes of Melbourne soar while those in the rest of the state crumble faster than anywhere else in the nation.
New calculations of capital city and rest-of-state economic growth derived from the national accounts show Melbourne's economy grew at a blistering 4.4 per cent in 2015-16, faster than anywhere else apart from Sydney, whose economy grew 4.5 per cent.
The economy of regional Victoria shrank for the fourth consecutive year, slipping another 1 per cent in response to a sharp decline in manufacturing. Victoria is the only state whose regional economy went backwards in 2015-16.
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SGS Economics and Planning, which calculates the capital city and rest-of-state figures annually, says GDP per capita in regional Victoria has collapsed 8 per cent since it peaked in 2006-07. Manufacturing in regional Victoria has collapsed 26 per cent since 2009-10.
Manufacturing has also collapsed in Melbourne. Calculations by SGS Economics show it accounted for 16 per cent of Melbourne's economy in 1996 and only 7 per cent by 2016. But financial services and professional services have filled much of the gap, accounting for 13 per cent of the economy in 2016 (up from 10 per cent) and for 9 per cent (up from 6 per cent).
Healthcare and construction have also become more important to Melbourne, accounting for 7 per cent of its economy (up from 5 per cent) and 6 per cent (up from 4.5 per cent).
In regional Victoria, other industries have failed to take up the slack left by manufacturing, and further plant closures are imminent, among them Ford in Geelong, the Alcoa plant at Anglesea and the Hazelwood power station in the Latrobe Valley.
This is no surprise to Latrobe Valley resident Graeme Middlemiss, who lists a range of closures, or cutbacks, that have left local workers jobless.
He starts the list with a briquettes manufacturer in Morwell. "It steadily declined from about 600 employees down to about 100 and then closed - and most of those people haven't been able to find work," he said.
The Morwell briquettes factory closed in 2014, not long after the closure of the neighbouring Australian Char site, with the loss of about 50 jobs. Job losses have also occurred in mid-sized and smaller businesses such as in steel fabrication, he said.
The former power station worker, who is a Latrobe City councillor, said there were noticeable signs that the local economy was declining.
Victoria has become Australia’s most centralised state, with 80 per cent of its economic activity taking place in Melbourne.
"The first thing that's apparent is there is not as much discretionary income in the community as there once was. Wages are lower, unemployment is higher - so what people have to spend is reduced," he said.
"My understanding is that our local economy, here in the Latrobe Valley, has been declining at about 2 per cent per annum for a number of years. Of course, that will be made much worse with the announced closure of the Hazelwood power station," he said.
The much poorer performance of the regional economy had accelerated the drift of country kids to the city in search of work, he said.
"Anecdotally, the young people in my region are finding it harder and harder to find meaningful work. So what it does is it puts pressure on these people to go to the city to find work," he said.
Victoria has become Australia's most centralised state, with 81 per cent of its economic activity taking place in Melbourne. In NSW, only 75 per cent takes place in Sydney. Even in highly centralised South Australia, 33 per cent takes place outside of Adelaide.
GDP per person in regional Victoria has slipped to $49,000, down from an inflation-adjusted $53,000 nine years ago. GDP per person in Melbourne has climbed to an all-time high of $65,000.
"I can't see the trend reversing, at least in the short-term," said SGS economist Terry Rawnsley, a specialist in national accounts who devised the city and rest-of-state accounts and used to produce the Australia-wide and state accounts while at the Bureau of Statistics.
"I can't see the Alcoa reopening, I can't see Ford reopening. The big centres, Geelong and Bendigo and Ballarat, need to work out what they are good at and get strong transport links to Melbourne.
"What they call the very fast train to Bendigo and Ballarat, which only goes at about 80 kilometres per hour, even that has helped Bendigo become a commuter town, which has helped the local economy because people spend money at home that they have earned in Melbourne.
Dr Rawnsley's calculations show regional Victoria deteriorating faster relative to Melbourne than it did when Jeff Kennett lost office in 1999 amid concern he was focusing too much on Melbourne.
Treasurer Tim Pallas said he recognised there were challenges in regional Victoria, "especially for those regions in transition, and after four years of inaction by the previous Liberal-National Government".
He said he was making record investments in regional rail, roads, hospitals and education, spending $2 billion in 2016-17, including $1.3 billion on regional rail. The $200 million Regional Health Infrastructure Fund would fund works and planning in Horsham, Port Fairy and Warragul. The budget set aside $169 million to reconfigure the Goulburn Valley Health service to meet the demands of a growing population.
Dr Rawnsley said so stark had the divide between city and the rest become that if the Reserve Bank made its decisions only for regional Victoria, it would need to cut its cash rate to 0.25 per cent. If it made them only for Melbourne, it would have to lift its cash rate from 1.5 to 2.25 per cent.