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In just five months, British Columbians will pay higher taxes on all fossil fuels -- including a new 2.41 cents per litre levy on gasoline -- in a new carbon tax announced on Tuesday.

But the tax will be balanced by tax cuts -- a so-called "Climate Action Dividend" -- that targets people earning less than $70,000 and encourages people to adopt greener lifestyles.

"Leading economists and scientists agree: seeing that cost, and making it real, will give us new incentives to change the habits that created global warming in the first place," said Finance Minister Carole Taylor in her budget speech on Tuesday.

Taylor said she wanted her budget -- the first in Canada to include a carbon tax -- to ignite social change.

"We're not just going to be talking about climate change," said Taylor. "We are acting. This could be a social movement in British Columbia."

Taxes on all fossil fuels

On July 1, 2008, the province will begin phasing in the carbon tax, which will hit gasoline, diesel, natural gas, coal, propane, and home heating fuel.

The rate starts at $10 per tonne of carbon-equivalent emissions and will rise by $5 per year over the next four years.

For diesel and home heating oil, it works out to about 2.2 cents per litre, rising to 8.27 cents by 2012.

And gasoline taxes will rise from a 2.41 cent increase per litre this July to an 8.27 cents per litre by 2012.

British Columbians already pay 3.5 cents per litre to help fund transportation projects.

The increases will put about $1.85-billion into provincial coffers over three years, with two-thirds of that money coming from businesses.

Taylor says the new taxes aren't meant to hurt economy

But Taylor said the budget attempts to balance the needs of fighting climate change while continuing to nurture a healthy economy.

"It is a budget that confronts and completely overturns the outdated notion that you have to choose either a healthy environment or a strong economy," Taylor said. "That either-or-thinking belongs to the past."

As for tax rebates, each adult and child in B.C. will get a $100 rebate, and lower-income people from B.C. will be eligible for a $100 payment per adult and a $30 payment per child as part of a Climate Action Credit.

And the bottom two personal income tax rates will drop two per cent in 2008 and five per cent in 2009 on the first $70,000 income.

Laura Jones, the Vice-President of the Canadian Federation of Independent Business was watching the speech in Victoria this morning.

She said that while a tax reduction could result in $4000 in savings for some businesses, many businesses that drive or deliver will be hard-hit.

"If you drive a taxi cab, and your gas prices go up, and that's your bottom line," she said. "There are better ways to get cleaner and greener, and the carbon tax isn't it."

"At the end of the day, it's a wash. We were hoping we'd get more than a wash," she said.

But B.C.'s Sierra Club disagreed, saying on its  that the new tax was a "bold" measure that would make B.C. a leader in tackling climate change.

Taylor also targeted homelessness with $104 million over the next four years, and an additional $78 million to allow emergency shelters to stay open 24 hours a day.

The total government revenue was projected at $38.5 billion, and a surplus of $50 million is projected. The surplus for last budget year was $2 billion.

Click  for the full transcript of the speech.

Watch CTV British Columbia's Jim Beatty with this story on Â鶹´«Ã½ at Six, as well as an interview with Finance Minister Carol Taylor.

Highlights of the British Columbia budget presented Tuesday:

Carbon Tax:

• Beginning July 1, 2008, British Columbia will begin phasing in a carbon tax on all fossil fuels including gasoline, diesel, natural gas, coal, propane and home heating fuel.
• The rate starts at $10 per tonne of carbon-equivalent emissions and will rise by $5 per year for the next four years.
• As of July 1, there will be a 2.41-cent increase per litre in gasoline. By 2012, it will be 7.24 cents per litre.
• For diesel and home heating oil, it works out to 2.2 cents per litre, rising to 8.27 cents by 2012.
• The tax will generate about $1.85 billion over three years.
• Two thirds of the money raised in the first year will come from business.
• The tax is to be revenue neutral and none of the money raised through the carbon tax will go toward program spending.
• Legislation will require a plan to be tabled in the legislature each year showing how the carbon-tax revenue will be returned to businesses and individuals.

Tax cuts:

• Each adult and child in British Columbia will get a $100 rebate - a so-called Climate Action Dividend - in June aimed at helping people adopt greener lifestyles.
• Lower-income British Columbians will be eligible for a $100 payment per adult and a $30 payment per child as part of a Climate Action Credit. The money will be paid quarterly.
• The bottom two personal income tax rates will be reduced for all British Columbians, resulting in a tax cut of two per cent in 2008 and 5 per cent in 2009 on the first $70,000 in earnings.
• Effective July 1, 2008, the general corporate income tax rate will be reduced to 11 per cent from 12 per cent. By 2011, it will be reduced to 10 per cent.
• Effective July 1, 2008, the small business tax rate will be reduced to 3.5 per cent from 4.5 per cent, with further reductions planned to 2.5 per cent by 2011.

Spending:

• Health spending increases by $2.9 billion over three years.
• $144 million over three years in extra money will go to K-12 education.
• $104 million of extra funding will go to reduce homelessness over four years.
• An additional $78 million over four years to allow emergency shelters to stay open 24 hours a day.

Overall:

• Total government revenue is forecast at $38.5 billion in 2008-2009
• Total government expense is forecast at $37.7 billion in 2008-2009
• The budget includes a $375 million contingency fund for emergencies and a $750 forecast allowance.
• The surplus is projected to be $50 million.
• The surplus for the last budget year was $2 billion.

With files from The Canadian Press