Liberal Democrat leader Charles Kennedy has unveiled his party's "alternative budget".
He confirmed the Lib Dems would abolish council tax and introduce a new 50 per cent top rate of income tax if they won power.
Kennedy also unveiled plans to raise the threshold for stamp duty on house purchases from £60,000 to £150,000 to take around 400,000 first-time buyers out of the levy altogether.
Kennedy said Liberal Democrat tax policy was based on the principle that the burden of taxation should not fall disproportionately on the poor and vulnerable.
Party Response: Liberal Democrat
Dr Vince Cable, economic spokesman, said: "Economic discipline and credibility are essential. But we intend to balance these economic imperatives with greater fairness.
"Our commitment to fairness is reinforced by a firm commitment to liberal economic policies: economic freedom. Without wealth creation there is no wealth to spread.
"We have identified over five billion pounds a year where low priority spending can be reallocated to our priority areas such as pensions, policing, health, and education.
"Our tax system currently reinforces rather than mitigates inequality. The poorest 20 per cent pay a higher percentage of their income in tax than the top 20 per cent. People don’t want to pay more tax but they want it distributed more fairly.
"That is why we advocate scrapping council tax and replacing it with local income tax (LIT). The majority of households will benefit or face no change under our system. Families on average incomes will benefit by over £450.
"That is also why we are lifting over 400,000 home-buyers, largely first time buyers, out of paying Stamp Duty.
"To enable us to abolish tuition fees and top-up fees, introduce free personal care for the elderly, and cut local taxation, we have also proposed a 50 per cent tax ceiling on every pound earned over £100,000.
"I believe we can have both a liberal and a fair economy; better public services and tax cuts for the average family, strong growth, with tough financial discipline. Our policies are fully costed and will promote economic freedom and social justice."
Party Response: Conservative
Oliver Letwin, shadow chancellor, said: "The Lib Dems say they will spend more than Labour. But even after their damaging 50 per cent top rate of tax they will still have the same black hole in their finances.
"Since the Institute for Fiscal Studies says Labour's black hole would be £11 billion, meaning a tax hike of £1,000 a year for a typical working couple, we challenge the Lib Dems to answer the same question we have repeatedly asked Mr Blair: which taxes would they raise?
"Will it be VAT on new homes, a 200 per cent council tax on second homes, VAT on all flights, or a tax on parking at work and at the shops, all of which have been approved by Lib Dem party conferences?
"The Lib Dem plans are nothing more than a recipe for clobbering millions of ordinary people, and for doing untold damage to the British economy."
Stakeholder Response: Construction Products Association
Allan Wilén, economics director at the Construction Products Association, said: "The Association welcomes the Liberal Democrats’ proposal to raise the stamp duty threshold on house purchases to help reduce the tax burden on first time buyers.
"However, we believe this should be part of a wider reform of the tax. The threshold has not been raised since 1993, while the recent rapid rise in house prices and the introduction of higher rate tiers of stamp duty have substantially increased the Treasury’s revenues from this tax.
"We believe that reform should include utilising the stamp duty regime to stimulate investment in improving the poor thermal performance of many existing homes.
"The other area of the Liberal Democrats’ alternative budget which is of interest to our members is their proposed abolition of the Department of Trade and Industry.
"Although undoubtedly the Department could be more effective than it is at present, the Association believes it is vital to have a strong voice in Whitehall and the Cabinet championing the business needs of industry.
"The Association would also like to see closer inter-departmental coordination on a range of cross-cutting issues such as planning, transport, housing, and skills."
Stakeholder Repsonse: Nationwide
A spokesman for Nationwide said: "Nationwide is pleased to see the Liberal Democrat alternative budget includes an increase in the stamp duty nil threshold to £150,000.
"In 1993, when stamp duty was applied to homes costing over £60,000, (and the average first time buyer's property cost £39,369), it affected only 10 per cent of first time buyers. Today stamp duty affects over
85 per cent of first time buyers.
Nationwide first called for the Stamp Duty nil threshold to be raised to £150,000 in December 2003. However, if the threshold had been index linked since 1993, the Stamp Duty threshold would now begin at £180,000.
"Stamp Duty could be reformed by either raising the threshold or by making struggling first time buyers exempt. This would increase affordability for up to 80 per cent of first time buyers, enabling them, on
average, to put an additional £1,250 towards their deposit.
"In the tax year 2003/4, stamp duty on residential property contributed £3.8bn to the chancellor's coffers with first-time buyers typically paying on average £1,250 each in duty, up from around £625 in 2000/1. The total revenue from stamp duty on residential property was equivalent to just over one penny on the basic rate of income tax.
"Clearly, the sharp rise in house prices over recent years has helped to boost revenues. We look forward to the chancellor's Budget on 16 March and hope that he will take the opportunity to assist first time buyers by announcing changes to stamp duty."
Stakeholder Response: Biffa Waste Services
A spokesman for waste management firm Biffa, said: "We seemed to be trapped in historic frameworks or straightjackets of how we raise and spend public money.
"Given the Liberal Democrats' wide understanding of environmental impact, it is a pity that they prevaricate on the subject of utilising fiscal and budgetary strategies to drive improved resource efficiency, producer responsibility, pollution permit trading and other messages.
"There are no fundamental technological blocks to achieving substantive gains - the blockages are economic and thereby attitudinal."
