VICTORIA - B.C. Tuesday imposed a carbon tax on all fossil fuels, effective July 1, that will raise $1.8 billion in the next three years.

It will add 2.4 cents to a litre of gasoline, rising to 7.2 cents by 2012.

It will be a revenue-neutral tax, and the money will be returned to taxpayers in tax cuts and incentives, Finance Minister Carole Taylor promised in her budget speech.

"Every dollar raised will be returned to the people of B.C. in the form of lower taxes," said Taylor, wearing a green woolen two-piece and green pumps to deliver her final budget speech.

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"We promised you green and today we delivered green."

Among the tax cuts and incentives is a one-time $100 carbon-tax dividend for all British Columbians and a two-per-cent tax cut on income up to $70,000 this year, rising to five per cent in 2009.

The $37.7-billion budget includes $1 billion for climate-change initiatives, including matching the $2,000 federal sales-tax exemption on fuel-efficient vehicles.

It also includes an additional $2.9 billion over three years for health care, bringing the health budget to $13.8 billion for the coming year.

The budget predicts a modest surplus of $50 million. The debt of $37.7 billion in 2008-09 will add another $7.5 billion by 2011.

The two-per-cent income-tax cut will amount to $51 this year for people making $50,000 a year, rising to $134 in 2009.

As well as the one-time $100 cheques for everyone this June, low-income people will continue to receive an annual "climate-action credit" of $100 per adult and $30 per child.

The budget will phase out the capital tax on banks, replacing it with a minimum tax to reduce taxes for financial institutions.

Small businesses receive a $255-million tax cut; corporate income taxes are cut by $415 million.

Taylor said B.C. is signing on to a cap-and-trade system for large emitters of greenhouse gas. Hard targets for emissions will be set and emitters who go over that cap can buy extra emission credits from companies that don't use theirs.

The $2.9 billion in health spending between now and 2011 includes a $300-million "transformation fund" to make regional health authorities more efficient.

There's also an innovation fund of $75 million to move to a patient-focused health model.

Debra McPherson, who heads the B.C. Nurses Union, noted health authorities are getting six-per-cent funding hikes but are still under-funded.

"The small increase poses serious problems for the health authorities' effort to attract and retain nurses and other health care staff needed to provide care for patients," she said.

Said Judy Darcy of the Hospital Employees Union: "This budget represents a lost opportunity for health care and B.C. patients. Government is committed to a vague notion of transformational change, but there are few details."

Ian Bruce, climate-change expert with the David Suzuki Foundation, said the carbon tax is a "powerful incentive that makes polluting activities more expensive, and going green cheaper."

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