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The first budget from Stephen Harper's minority government targeted middle-class voters yesterday with $26-billion over three years in highly visible tax cuts that Canadians will notice in stores, on buses and at work.

The budget, introduced by Finance Minister Jim Flaherty, lays out 28 separate tax reductions, many of which are targeted measures chosen in a clear effort to appeal to working families and to make tax relief tangible for Canadians.

"Canadians pay too much in tax. It's holding families back," Mr. Flaherty told the House of Commons as he tabled the first Conservative budget in 13 years. "It makes it harder for small businesses to create jobs and opportunities. It discourages innovation and investment."

The cuts include a promised one-percentage-point reduction in the GST, tax credits for public-transit users and youth-athletic programs, and a $1,000 grant for apprentices, among several others. The minority Tories will almost certainly have no more than three budgets to demonstrate to voters that they deserve a majority government the next time Canadians go to the polls.

But even as they showered tax reductions on Canadians, the Tories stuck to an election promise to rescind a Liberal income-tax break enacted last November. The budget effectively raises income taxes by boosting by one-half of a percentage point the rate paid at the lowest income bracket. The Liberals had reduced taxes in that bracket by a full point last year.

This rate change means lighter-than-expected paycheques starting July 1 for many Canadians, working out to $62 more income tax this year and $124 in future years, according to the Canadian Taxpayers Federation.

However, the Tories moved to safeguard themselves from charges they're hiking taxes overall by introducing a surprise wrinkle in the two-year budget package: a break for working Canadians called the Employment Credit that should deliver about $155 in tax savings when fully implemented next year.

The measure will allow employed Canadians to claim a credit of up to $250 this year and $1,000 next year for work expenses -- without presenting receipts to Canada Revenue Agency.

"This is the measure that squares the circle and enables the government to say every taxpayer will be better off after this budget was tabled," says John Williamson, executive director of the Canadian Taxpayers Federation. "Without it, some taxpayers would have ended up paying more."

The budget maintained only a soft focus on Mr. Harper's five priorities. While the GST cut and the Conservative child-care plan were both announced, there was no extra cash for the health-care guarantee.

There was money for RCMP officers to combat crime, but the budget had little new to say about accountability.

The budget sparked criticism from both the Liberals and the NDP, who said they would not back it. However, the minority Tory government appeared to be safe after Bloc Québécois Leader Gilles Duceppe quickly signalled his caucus would support it.

"The most important thing is the commitment to settle the fiscal imbalance. The real budget will be next year," Mr. Duceppe said. "Meanwhile we don't want to bluff like the two other parties are doing."

Liberal Leader Bill Graham criticized the plan for raising income taxes.

"Basically it does not address the needs of middle-income Canadians," he said.

The NDP's Jack Layton added that his party cannot support the billions in corporate tax breaks the Tories are proposing.

"We will vote against it, but we will propose amendments. If Mr. Harper would accept a few changes, we're here to improve the budget, but we'll see," Mr. Layton said.

He added that he was disappointed with a lack of measures to aid aboriginals.

The Tories argued that their new cuts -- which will be seen at the cash register and when Canadians fill out their year-end tax forms -- will more than make up for the cancellation of the Liberal cut.

The budget hews closely to the Conservative election platform and also includes previous promises for a $100-a-month daycare allowance for parents of children under six years of age. Both the GST cut and the daycare allowance will kick in July 1.

"For this government, supporting families means providing choice in child care for all Canadian families," Mr. Flaherty said.

Other measures include a textbook tax credit that will cost $260-million annually, a break for fishermen when they transfer property to their children, added tax relief for seniors, and a new $500 tax deduction for the cost of tools. There will also be a $2-billion injection for farmers over two years.

While they focused on suburban and rural voters, the Tories also sprinkled about $2-billion over two years in tax cuts for business across various sectors, from banks to vintners and small brewers. They also restored tax breaks for large corporations that the NDP forced the Liberals to cut from the 2005 budget.

The Conservative budget is also unabashedly less prudent than previous Liberal fiscal plans in that it abandons the use of a $1-billion cushion previously used to help safeguard against economic downturns.

This leaves the Tory budget more vulnerable to being sideswiped by the economy and veering closer to deficit, as budget documents show.

The Tories forecast an underlying budget surplus of $3.6-billion for the current fiscal year and $4.4-billion for 2007-2008. But the budget itself shows that a one-percentage-point hike in interest rates that's sustained for a year would cost the treasury $1-billion in revenue. Furthermore, a one-percentage-point decrease in economic growth would cost Ottawa's coffers $2.7-billion, the budget says.

And while the Tories largely fulfilled their tax-cutting pledges, another promise aimed at cutting expenditures fell short.

The Tories pledged during the election to trim spending growth by $22.5-billion over five years, but yesterday's budget commits only to find savings of $1-billion in both 2006 and 2007.

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28 tax reductions . . . and one hike

1. GST reduced by one percentage point to 6 per cent on July 1.

2. New Canada Employment Credit of $500, rising to $1,000 next year, for work-related expenses such as uniforms and home computers.

3. Income Tax Act to be amended so new $100-a-month child-care payment can be claimed by the lower-income spouse.

4. Family fishing boats become eligible for a $500,000 lifetime capital-gains tax exemption.

5. Excise duties repealed on the first 500,000 litres of wine made from Canadian-grown crops and reduced on beer from small and medium-sized breweries.

6. Excise tax repealed on jewellery made in or imported into Canada, clocks and articles made with semi-precious stones.

7. A $500 tax credit for parents whose children enroll in organized physical activity.

8. Tax credit on the purchase of monthly transit passes starting in July, meaning about $150 a year in tax relief for frequent transit users.

9. Exemption from capital-gains tax on donations of publicly listed securities to public charities.

10. Increases to $2,000 from $1,000 in the maximum amount of pension income that can be used to calculate the pension-income credit.

11. Increases the maximum annual Child Disability Benefit to $2,300 from $2,044 effective July 1 and coverage extended by reducing the rates at which the benefit is cut as family income rises.

12. Reintroduces the mineral- exploration tax credit to solidify recent exploration gains.

13. Raises the maximum amount of the refundable medical-expense supplement to $1,000 from $767 for the 2006 tax year.

14. Apprenticeship job-creation tax credits for employers, who will get $2,000 per apprentice.

15. A $1,000 apprenticeship grant for apprentices who take part in approved programs.

16. Tools deduction allowing tradespeople to deduct up to $500 for the cost of tools exceeding $1,000.

17. Textbook tax credit, worth about $80, for postsecondary students.

18. Removes the $3,000 limit on the tax-exempt status on bursaries, scholarships and fellowships so that all such income is tax free.

19. Reduces the parental contribution on Canada Student Loans so that about 30,000 more students with family incomes between $65,000 and $140,000 are eligible.

20. Donations of ecologically sensitive land under the Ecogift program will be exempt from capital-gains tax.

21. Reduction in the effective tax rate on dividends, matching a promise the Liberal government had made in an attempt to level the playing field between income trusts and other corporations.

22. Lowering of the general corporate income-tax rate to 19 per cent from 21 per cent by 2010.

23. Increases the amount of small-business income eligible for a 12-per-cent tax rate to $400,000 from $300,000, as of Jan. 1, 2007. The rate falls to 11.5 per cent in 2008 and to 11 per cent in 2009.

24. Eliminates the corporate surtax for all corporations as of Jan. 1, 2008. The surtax had previously been eliminated only for small and medium-sized companies.

25. Accelerates the capital cost allowance for forestry bioenergy.

26. The federal capital tax, which under the Liberals was to have been eliminated in 2008, will disappear this year at a cost of $795-million.

27. Eliminates so-called double taxation of dividends from large corporations at a cost of $375-million this year and $310-million next year.

28.Gradually raises the basic personal amount exempt from income tax to $10,000 by 2009.

ONE HIKE

1. Reduces the lowest personal income-tax rate to 15.5 per cent July 1. However, that is half a percentage point more than the rate currently in effect.