Prepare for interest rates to go through the roof.

My, my. The Australian government is lining up toast their economy with two birds for the price of one. Enter the "Carbon Tax". The current federal government is hanging onto power by a wee little thread and they're compelled to make promises and bow to pressures from independents and Green party seats. Granted I'm no expert when it comes to everything to do about this green tax, but most of what I've read about it spells bad, bad news for Australia's current boom.

The introduction of the Carbon tax is aimed to "encourage" business to increase and invest in energy savings. Now while this sounds like a good thing, the reality is that it is going to make it more expensive to do business. (But that's good for the Earth!) The problem here is that businesses that feel the pain will want to, or need to pass that pain on to the consumer. Even businesses that feel little or no pain will use it as an excuse to squeeze more profit out of consumers. Of course the government has promised that excessive or unsubstantiated increases due to carbon costs will have "appropriate action" taken against them. Sure. The government's counter to increased costs passed on to consumers will be tax cuts for families, funded by the Carbon tax. I'm no economist but this spells one thing: "Inflation". Prices will go up, and the government gives consumers the means to accommodate that increase.

Now when the government took a stab at localized green measures such as the water tank rebates, pool cover rebates, insulation rebates, and solar panel REC credits, these all will have caused micro-economic spikes in inflation. People don't CARE how much something costs, or what value for money they're getting when the government is footing the bill, and retailers KNEW this. The government is handing out UP-TO $X for a 5000L water tank, well that'd cover a good chunk of a high quality tank, but to consumers a tank is a tank so many retailers pawn off cheap crap for the rebate amount. The government paid for up to 100 square metres of roof to be insulated in people's homes. I'm sure they're wondering why so many people seem to have 98-100 square metre roofs. Installers will claim as close to the maximum rebate as they think they'll get away from. Customers don't care, it's not directly their money.

Just today we received their booklet about the carbon tax selling the idea on public by trying to claim that most people will get more from tax breaks than projected increases passed on to them. Realistically if they want this carbon tax to work, then there should be NO tax cuts. Yeah, it's painful for everyone but it's the only way to find a proper balance when trying to do the right thing without feeding inflation and promoting competition and inovation to make greener solutions more cost-effective. The current message to industry groups is a complete crock:

"Hi, it's the government. we need to look like we're doing something for the environment so we're going to hit you with a new tax because you're producing a lot of CO2. But don't worry mate! We're giving more money to your consumers so you can recoup your costs by increasing your prices."