OTTAWA - Liberal Leader Stephane Dion is proposing a $15.4-billion-a-year tax shift that would hike the cost of burning fossil fuels while lowering income taxes and boosting family support payments.

Dion unveiled the sweeping plan at a boisterous partisan rally on Parliament Hill, where Liberal MPs wore green baseball hats labelled "The Green Shift."

The Liberal leader is gambling his leadership and his party's electoral fortunes on persuading voters to pay for polluting while getting a reward if they go green.

Dion called the plan "as powerful as it is simple."

The concept has been ridiculed for weeks by the governing Conservatives, who mocked talk of a "revenue neutral" tax shift as simple trickery.

But Dion compared it to the Clarity Act he penned as a Liberal cabinet minister, which set strict referendum rules for Quebec's potential secession. That act was also initially panned as risky and provocative.

"When it comes to clarity, what can be clearer than this: we need to make polluters pay and put every single penny back in the hands of Canadians through progressive tax cuts," said Dion.

The Liberal plan would initially peg the price of greenhouse gas emissions at $10 per tonne, rising to $40 per tonne in the fourth year. At that point, the tax would be boosting federal revenues by $15.4 billion annually.

Dion says that tax hike would be offset by income-tax cuts to lower-income Canadians, boosts in the child tax credit and a one per cent cut in corporate and small-business tax rates.

"The environmental and economic challenges of the 21st century can only be solved by bold vision and courageous leadership," said the beleaguered Liberal leader.

"I offer this leadership to my country. My party, the Liberal party, must do so because others will not."

The impact on energy consumers will be significant. By the fourth year of the plan, the average heating bill for homes that use oil will rise by $203 a year. Homes warmed by natural gas will see annual costs rise by up to $266, background documents say.

But the plan also includes a massive revamping of the income-tax system, with special breaks for northern and rural residents, families with children, pensioners, the disabled and others, all to ease the pain of higher energy costs.

For example, Dion promises a new child-tax benefit of $350 a year per child, on top of all other existing benefits.

Rural Canadians would be given an annual tax credit of $150 a year, and northern residents' existing $6,000 annual tax break will rise to $7,000, and then be indexed.

And Canada's basic income-tax scale will be recalibrated downward, with the lowest rate cut to 13.5 per cent from 15 per cent along with other cuts for middle-and higher incomes.

The party says a family with two children earning $60,000 will save over $1,300 from the tax cuts - though that same family will also be paying more for energy.

But the plan also claims 700 large industrial emitters, such as power plants, will actually be paying the bulk of the new carbon taxes.

Liberals are touting the green shift as salvation for both the economy and the environment - and gambling that it will result in Dion's political salvation into the bargain.

While the need to combat climate change is the primary motivation behind the plan, Liberals contend it's also an economic necessity.

Soaring oil prices and dwindling fossil fuel supplies are causing increasing pain for consumers and mounting economic dislocation for so-called smokestack industries. Dion's plan is intended to help wean Canadians off fossil fuels as painlessly as possible and give Canada a head start on developing the "green collar" jobs of the future.

Liberals argue that Conservative and NDP plans to cap the emissions of big polluters would similarly clip consumers as companies pass the costs along. But unlike either of those parties, they boast that Dion's plan would actually help offset the costs for Canadians.

Still, many Liberals privately worry that the plan will be a tough sell with voters who are already reeling from skyrocketing gas prices and a faltering economy. Even those who applaud Dion's initiative acknowledge that it's complicated and they fret that Dion, with his marginal communications skills, is hardly the best person to explain it.

By contrast, the Tories' mantra that Dion's plan amounts to a massive, permanent "tax on everything" may be crude and inaccurate but it's at least simple and easy to understand. And the Tories have been relentlessly spinning their take on Dion's plan for weeks, long before he could unveil the details.

Nevertheless, Dion is determined to make the green shift the central plank of the Liberal platform for the next election campaign, hoping to shake off the Conservatives' caricature of him as weak, dithering, spineless leader.

His strategists hope the bold initiative will demonstrate that Dion is a visionary, courageous, sincere leader who's determined to do the right thing for the planet, even if it's politically risky.

Moreover, they hope the plan will position the Liberals comfortably in the centre of the debate over climate change - with a less onerous carbon tax than proposed by the Green party but more vigorous than anything proposed by the governing Tories. They hope to marginalize the NDP, which has sided with the Tories in opposing a carbon tax.

Dion and key members of his team are expected to fan out across the country over the summer to sell the merits of the plan.

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