While the Opposition, the New South Wales government and some businesses such as bakery chain Brumby's are blaming the carbon tax for rise in prices, Australia's retail industry is rejoicing because the carbon compensation caused the sector's growth rate to hit a two-year high.

Besides the carbon compensation which the federal government started to send in mid-May ahead of the July 1 start of the carbon tax, the retailers also cited tax cuts as the reasons why the growth rate of the retail sector jumped by 0.9 per cent to 3.4 per cent compared to 12 months ago.

Gerry Harvey, chief executive of retailer Harvey Norman, disclosed that the carbon compensation boosted the sale of furniture, bedding and other white goods.

Besides the direct compensation, the Gillard government also handed out schoolkid bonuses to families with children in primary and secondary schools. The bonus, which total over $2.1 billion, were deposited to the bank accounts of the students in late June and added to the boost in retail sales. The carbon compensation was $320 million worth.

"The windfall one-off assistance payments allowed consumers to accelerate planned purchases that they would have been saving for," CommSec chief economist Craig James was quoted by The Australian.

However, JPMorgan economist Tom Kennedy said beyond the one-off payments, the retail industry could count on higher sales in the coming months due to tax cuts after the federal government trebled the tax-free threshold which applied to taxpayers who earn less than $80,000 a year.

Citi economist Josh Williamson also attributed the retail sales boost to the impact of the 50 basis points cut in overnight cash rate made by the Reserve Bank of Australia in May.

As a result of these factors, retail spending grew in all Australian states, except in Tasmania and South Australia, to $21.3 billion in May. It was the fifth straight monthly increase and the second largest hike for 2012.

Australian National Retailers Association Chief Executive Margy Osmond opined that the boost in May sales may have been Aussies' way of offsetting expected price tag hikes due to the carbon tax.

The good news for Australia's retail sector helped boost the value of the country's currency which rose to 102.89 U.S. cents at 5 p.m. on Wednesday, up from Tuesday's 102.63 cents. It even reached 103.06 just before noon of Wednesday before it settled to 102.89 which is a two-month high.

The jump in retail sales, which had been sagging the past year due to weak consumer confidence, could be tapped by the federal government in its carbon tax war with the Coalition as its weapon.

Earlier this week, 300 Aussie firms including large businesses such as Westpac, AGL and GE, supported the carbon tax through paid advertisements while the Opposition continued its scare campaign as it vowed to repeal the measure if it wins the 2013 election.

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