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Liberal Leader Stéphane Dion Dion, who once called a carbon tax a 'bad policy,' said Thursday his thinking had 'evolved and I’m showing it.' ((CBC))

Liberal Leader Stéphane Dion revealed details of his party's $15.4-billion carbon tax plan Thursday, a proposal he pledged would be revenue neutral by offsetting the higher costs for burning fossil fuels with broad-based tax cuts.

"We’ll cut taxes on those things we all want more of — income, investment and innovation — and we will shift those taxes on things we want less of — pollution, greenhouse gas emission and waste," Dion said in a campaign-style speech.

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'Well, a carbon tax is a rough pill to swallow. However, we need to reduce pollution and this will help.'

— Cory Barnes

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"Our plan will be good for the environment and good for the economy — good for the planet, good for the wallet."

The party would deliver an estimated $15 billion in broad-based income tax cuts to Canadians facing higher energy and goods prices as a result of new taxes on Canadian industries that produce high carbon emissions. He promised that the federal auditor general will examine the books each year to ensure the program remains revenue neutral.

"It's never going to be revenue neutral for any individual or any corporation," observed Don Drummond, the chief economist for TD Bank.

"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."'

Harper calls plan a 'revenue grab'

The plan has been seen as a risky political move by some, with members of Dion's own caucus worried it may be a tough sell in an environment of high oil prices. The Conservatives have already attacked the proposed plan ahead of its unveiling, dismissing the idea that it will be a "revenue neutral" tax shift and arguing it will be a tax on everything.

Prime Minister Stephen Harper immediately scoffed at the plan on Thursday, saying Canadians won't be fooled by what is simply a cash grab by the Liberals.

"The people aren't stupid … All this is a revenue grab to finance his own programs," Harper told reporters in Huntsville, Ont.

"They're so bankrupt intellectually that the only policy idea they can come up with is to impose a new tax on energy prices at a time when energy prices, rising energy prices, are a national and global problem."

Dion said the cost of the Liberal plan, called the Green Shift, would initially peg the price of emissions from fossil fuels such as coal, oil and gas at $10 per tonne of carbon dioxide, rising to $40 per tonne in the fourth year.

For example, costs for propane, home heating oil and diesel would increase by 8.4 per cent, 8.2 per cent and 4.9 per cent respectively in the fourth year of the plan.

Dion said that by the fourth year of the plan, the increased cost to an average home would be $225 to $250 per year.

But Dion said that tax hike would be offset by income tax cuts. The document outlines a one percentage point reduction in both the general corporate tax rate (to 14 per cent from 15) and the small business income tax rate (to 10 per cent from 11).

The plan offers the following personal income tax cuts in compensation as people pay more for heating costs, food and other items:

  • A 1.5 percentage point rate reduction for the lowest tax bracket (the first $37,885 of taxable income), to 13.5 per cent from 15.
  • A one percentage point rate reduction for the second-lowest tax bracket ($37,885-$75,769), to 21 per cent from 22.
  • A one percentage point rate reduction for the bracket between $75,769 and $123,184, to 25 per cent from 26.

Dion also unveiled a number of tax credits he said would help out families. He said that the plan, by the fourth year, would include a new refundable child tax credit worth $350 per child per year.

The Liberals would also introduce a new guaranteed family supplement that would provide $1,225 to low-income families with children under 18.

As well, the plan would include a green credit worth $150 every year for every rural tax taxpayer, beginning in the first year of the plan.

Dion said the overall plan means a family with two children earning $60,000 will save more than $1,300 through the tax cuts — though that same family will also be paying more for energy.

Increase won't be felt at pump, Dion says

The plan also stresses it will not increase the gas tax at the pump. Speaking to reporters later, Dion rejected the notion that increasing the price of fossil fuels would ultimately raise the cost of gasoline.

"This price is a world price and these [oil] companies are making a lot of profit, so we don’t expect an increase at the pump," Dion said.

Dion said the plan would create a stronger economy and healthier Canadians, which would offset the loss of tax revenues if people start decreasing their use of fossil fuels.

"The beauty of this tax is that at the end — I don't know how long it will take — it will give nothing to the government.

"At that time we will have a very strong economy though. We will have a strong economy for energy efficiency, not depending on a fuel that the cost is increasing every year — an economy that will pollute less and people will be more healthy."

Dion, who once called a carbon tax a "bad policy," said he has changed his mind: "My thinking evolved and I’m showing it."

Conservative MP Jason Kenney said Dion's change of heart might be his "most spectacular flip flop to date."

The tax will mean higher fossil fuel costs for oil producers, higher electricity costs for manufacturers, and increased diesel costs for trucks transporting products, which will translate to higher prices for consumers, Kenney said.

"It's a chain reaction that doesn't stop," he said. "You'll pay more for everything."

With files from the Canadian Press