Carbon Tax to Add 0.7% to Inflation Rate

On the second week of the implementation of the carbon tax, Treasurer Wayne Swan said the $23 per tonne carbon price is now a reality which Australians would have to judge its impact on their lives.

The Opposition has forecast large boost in prices on account of the carbon tax, but Mr Swan said in his weekly economic note that the levy is expected to boost inflation rate by only 0.7 per cent and hike electricity bills by 10 per cent.

Coalition leader Tony Abbott, who vowed to repeal the carbon tax if he becomes prime minister in 2013, continue to describe the measure as the world's biggest carbon tax at the worst possible time. He said by imposing the levy, Canberra is exposing Australia to all sorts of economic damage while not doing the environment any good.

Mr Swan pointed out that higher electricity prices and slight uptick in prices of other goods and services would be offset by the average A$10.10 a week assistance that 6 million Aussie households will receive as part of the carbon tax compensation scheme. With power prices up by A$3.30 a week, he estimated that 4 million households would even end up better off.

The treasurer also cited the approval on July 4 by ConocoPhillips and Origin Energy of the second stage of the A$20-billion liquefied natural gas project as evidence that the carbon and mining taxes did not impact investments in the resource and energy sectors.

"Far from sounding the death knell of the resource sector, investment has skyrocketed since both policies were announced," Bloomberg quote Mr Swan's economic note.

Even outside that booming sector, Mr Swan pointed to data on dwelling approval, retail sales, services activity and business credit as evidence of the twin taxes imposed on July 1 not hurting the Aussie economy.

Carbon tax observers said that Gillard government is unlikely to drop the fixed-price period and floor price earlier than the original timetable because it would only divide the already hung parliament, provide more bullets to Mr Abbott's scare campaign and the long period it would take to change legislation and implement the amendments.

The Herald Sun wrote that it should take at least five years of observing the operation and impact of the carbon tax before Australians would be able to properly judge if the carbon tax was a mistake or success. The daily, however, pointed out that the negative impact could actually be masked by the continuing resource boom and the assumption that the country's coal and iron ore exports would continue to rise in the next few years.