Liberal Leader Stephane Dion revealed his party's carbon tax plan Thursday morning, telling reporters that Canada needs to make a "green shift" to help save the environment.
At the heart of the energy plan is an energy tax on carbon fuels, which will be based on consumption.
New taxes are expected to generate about $15.4 billion annually in revenue in four years. But the Liberals say their plan will be revenue neutral because it will cut income taxes and increase family support payments.
Dion said his plan is "as powerful as it is simple."
"The Liberal Green Shift will cut taxes on those things we all want more of -- such as income, investment and innovation -- and shift those taxes to what we all want less of: pollution, greenhouse gas emissions and waste."
The proposed tax -- unveiled at a boisterous Liberal rally in Ottawa -- will hit electricity and home heating fuel but exempt gasoline at the pumps, which Dion said was already taxed.
The Liberals say their "Green Shift" plan will:
- put the price of greenhouse gas emissions at $10 per tonne, rising to $40 per tonne in the fourth year
- cut the lowest income tax bracket ($37,885 or less) by 1.5 per cent to 13.5 per cent
- give a one per cent tax cut to the second and third lowest income brackets
- cut taxes by $15.5 billion, including $11 billion in personal income tax cuts
- create a new universal child tax benefit worth $350 per child annually in addition to existing child benefits
- add a $600 increase to the Guaranteed Income Supplement for seniors, and increase benefits for low-income Canadian families
According to background documents, consumers will feel some impact, but the Liberals say extra fuel costs will be balanced off by income tax breaks and benefit increases. The average heating costs for homes that use oil are expected to rise by $203 per year. Homes using natural gas could see an average annual increase of $266.
The Liberals say a family of four with an annual income of $60,000 will save more than $1,300 from their tax cuts. The savings will be largely offset by higher energy costs, and the Liberals say the bulk of their plan will be paid for by large industrial emitters.
In a question and answer with reporters following the rally, Dion said he has not abandoned his support for a "cap and trade" system for carbon emissions in favor of a carbon tax. But he said such a system -- which would force companies to buy credits if they go above emissions quotas -- is likely years away.
"I changed my mind. My thinking evolved ... the best place to start right now is the "Green Shift," he said.
Tories: plan is a 'tax trick'
But Prime Minister Stephen Harper accused Dion of making a tax grab and of flip flopping on a commitment against a carbon tax.
"Mr. Dion has already broken his promise," Harper told reporters following a press conference in Huntsville, Ont.
Dion said "he would not have a carbon tax ... when he gets into office he'll put a carbon tax on gasoline and everything else. And it will not be revenue neutral," Harper said.
Dion said the tax would be revenue neutral, with the auditor general reporting annually to be certain.
The plan "will put every single penny back into the hands of Canadians," he said.
The Conservatives held a press conference Thursday afternoon to outline their criticisms in detail. Alberta MP Jason Kenney claimed new taxes on jet fuel, diesel, and home heating will hurt average Canadians.
He said manufacturers, oil refineries, and every company that faces carbon taxes will pass on their costs to consumers.
"You'll pay more for everything," Kenney said, calling the "Green Shift" a phony phrase.
Analysts say the Liberal plan is considered an enormous political risk and a tough sell, and is expected to generate debate across the country over the summer.
The issue may become the focal point of the next federal election. It quickly created a heated debate in the House of Commons, where the Liberals and Tories continued to exchange barbs over the issue during question period. The NDP also jumped into the fray.
"We've got no plan from the government, with emissions going up. (And)we've got the wrong plan from the Liberals," said NDP Leader Jack Layton.
The NDP dismissed the Tories' intensity-based approach, which the party says won't reduce carbon emissions. Layton has also rejected the concept of a carbon tax.
Instead, the NDP has called for a "cap and trade" system that puts a strict limit on greenhouse gas emissions by "big polluters." The companies would pay if they exceed their limits. Companies that don't use their capacity could trade or sell unused credits.
Some analysts say the Liberal plan introduced Thursday may be revenue neutral on a large scale, but not everyone will see new taxes offset by tax cuts.
"It's never going to be revenue-neutral for any individual or any corporation,'' Don Drummond, the chief economist for TD Bank, told The Canadian Press.
"Everybody's going to be able to do their own calculations to some degree, and there will be winners and there will be losers. So in aggregate you may say, 'OK, the $15 billion got recycled, but it didn't in my household budget.'''