The idea is that the top 500 “dirtiest” (carbon-producing) companies in Australia will be taxed for every tonne of carbon they produce. In turn we’d expect them all to raise the prices of their products – because we couldn’t imagine those companies wanting to deliver less value to their shareholders given that almost every annual report from every major corporation promises “increased shareholder value” or “focus on return to shareholders”.

So the price of things goes up… Where does that money go? It goes to pay for the carbon tax and that tax is received by the Government. In turn, the Government will make concessions for tax payers so that it seems like nobody’s losing out.

So what’s the point? How does it make a difference?

Well basically, the price on carbon creates a new cost for businesses, and it’s a cost they can drive down by becoming ‘greener’ in the way they do things.

But will companies look to becoming greener? Or will they move offshore to avoid Australia’s latest tax? Or perhaps reduce their costs in a quicker and easier way – by reducing their payroll costs through layoffs? That’s certainly not good for Australia…

So let’s say we lose some business and jobs to other countries that don’t tax carbon… (Don’t forget, we’ve seen it before with losing our manufacturing industry to countries with cheaper labour forces. Companies do things where it’s cheapest to do them.) But other than that, let’s say the carbon tax programme takes off and runs pretty much as planned.

In order to administer anything, the Government requires more processes and people. They’ll be multiple new departments set up for administering the carbon tax and then potentially monitoring the carbon credits trading scheme. In addition, existing authorities such as the ACCC will probably bolster their numbers to check up on companies to ensure they aren’t using the carbon tax as an excuse for overly inflating their prices… I guess demand & supply and free market dynamics can’t be relied upon after all. All that checking and administration costs big money – Yes, it will create jobs, but also create massive, lumbering inefficiencies.

Some of the revenue from the tax will be invested into developing ‘green technology’. That could be good for Australia. But the Government hasn’t got a great track record when it comes to rolling out programmes for environmental initiatives (such as the insulation scheme… dead insulation installers.) That’s bad for Australia.

Okay, so the burning question… Will the carbon tax have an effect on interest rates or your credit card and other credit facilities?

The reality is that our economy is so very interconnected that even changes in one commercial sector can influence another seemingly unrelated one. For that reason, we won’t exactly know the possible ramifications of a carbon tax on credit cards and credit facilities until it’s introduced and bedded down. However, given that banks and other credit providers aren’t what you’d classify as heavy carbon producing companies, there may be no direct or immediate impact. It’s more likely that the macroeconomic ramifications (e.g. sharemarket reactions) will influence interest rates more than the tax directly will.