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Finance Minister Carole Taylor introduces the budget in the legislature in Victoria on Tuesday afternoon. ((CBC))

British Columbians will be paying more at the fuel pump and less at tax time under a new carbon tax on all fossil fuels unveiled Tuesday as part of the Liberal government's budget.

The balanced budget, introduced by Finance Minister Carole Taylor in the legislature in Victoria, forecasts a total revenue of $38.5 billion and total government expense of $37.7 billion in 2008-09.

The surplus for this budget year is projected to be $50 million, while last year's figure was $2 billion.

"This budget marks a turning point," said Taylor. "It overturns the notion that you have to choose either a healthy environment or a strong economy."

As part of the new tax plan, carbon-based fuels — including gasoline, diesel, natural gas, propane, coal and home heating fuel — will be taxed at $10 per tonne of greenhouse gases generated, starting July 1, 2008.

That will translate into a new 2.4 cents per litre tax on gasoline at the pump and 2.8 cents per litre for home heating fuel.

The carbon tax rate will rise by $5 a year for the next four years, until it hits $30 per tonne of greenhouse gas generated in 2012, said Taylor.

"The principle is simple," said Taylor. "Tax carbon-emitting fuels to discourage their use, and give the money back to people, back to businesses, so they have control. They can make their own choices about how the tax affects them."

The tax will earn the government an estimated $1.85 billion over three years, but Taylor said the plan will be revenue neutral. The government will give all of the money back to taxpayers in the form of tax breaks, she said.

Income tax rates for the first $70,000 earned will be cut by five per cent in 2009, giving B.C. the lowest personal income tax rate in Canada for those earning less than $111,000.

The corporate tax rate will also be cut one per cent to 11 per cent in 2009, and 10 per cent in three years, making B.C.'s corporate tax rates on par with the lowest in Canada.

In total, businesses in B.C. will pay a total tax rate of 25 per cent when federal and provincial taxes are combined, making B.C.'s corporate tax rate 10 per cent lower than the U.S. average, said Taylor.

She also said that in June the government will issue a $100 rebate to every adult and child in the province to offset the cost of the carbon tax.

Taylor says B.C. will lead global warming fight

The budget follows the throne speech last week, in which Premier Gordon Campbell and his government urged British Columbians to take personal responsibility for reducing climate change.

Taylor said that, just as Canadians learned from British Columbians about aerobics, whole grain breads and healthy lifestyles 20 years ago, so will people in the province teach the rest of the country what it means to tackle global warming.

The budget also includes $1 billion over four years for energy efficiency initiatives, including funding for home energy audits and retrofits, sales tax exemptions for energy efficient appliances and vehicles, and clean fuel technologies.

The budget also added $2.9 billion to health care spending over the next three years, and close to $800 million for social services, justice and public safety.

There was also more than $400 million in tax reductions for the film industry, industrial property tax rates and other business taxes.

Total government revenues are forecast to hit $39.4 billion in 2007-08, while total government expenses are forecast to be $37.3 billion in 2007-08.

In 2007-08, the total provincial debt is forecast rise to $35 billion, while the the taxpayer-supported debt to GDP ratio is forecast to decline from 14.1 per cent in 2007-08 to 14 per cent in 2008-09.

With files from the Canadian Press