By Steve Bargeton, political editor

THE MINORITY SNP Scottish Government yesterday published their long-awaited plans to scrap the council tax and replace it with a flat rate 3p local income tax.

Launching a consultation paper at Holyrood finance cabinet secretary John Swinney claimed the “vast majority” of Scots would be better off under the plans.

“The council tax is unfair, regressive and penalises people on low incomes,” he said.

“The people of Scotland will be better off paying a fairer, local income tax based solely on the ability to pay.

“More than four out of five households will be better off or no worse off under our local income tax.”

Ministers hope to introduce the plans in 2011/12, around the time of the next Scottish Parliament elections, but politically have a mountain to climb.

Labour and the Tories oppose a local income tax and although the system has the support of the Scottish Lib Dems, they want local councils to be able to set the local tax rate.

Under SNP plans council tax would be replaced with a 3% rate of tax applied to income already subject to basic and higher rates of UK income tax.

Ministers would like the tax to be collected through the existing Pay As You Earn (PAYE) system.

They calculate it would cost £30 million a year to collect a local income tax—half the cost of collecting the council tax.

There would be exemptions for savings and investment income, while a tax for second homes would broadly stay in line with the current arrangements.

Mr Swinney claimed his plan would raise £284 million less than is currently raised by the council tax.

Yesterday at Holyrood parties argued about who and how many would be better or worse off under the plans.

According to the Government, a single household with a salary of £20,000 would pay £443 local income tax.

A single household with a salary of £33,675 would pay £854 and a single household with a salary £62,000 would pay £1703.

Government figures suggest those on low and middle incomes would be better off with the local income tax by an average of £359 to £535 a year.

They claim the average single pensioner would be better off by £7.30 a week and pensioner couples by £13.80 a week.

They suggest that couples with and without children would be better off by between £3.10 and £3.40 a week and single parents by an average of £5.40 a week.

Only the top 10% of earners would be worse off.

However Labour leader Wendy Alexander said that the local income tax plan was a “Scottish jobs tax”.

Ms Alexander said, “It will make Scots workers the highest taxed in the UK.

“This Scottish jobs tax will hit the pay packets of every hardworking Scot.

“There is nothing fair about the super rich getting off scot free. And nothing just about making hardworking Scots pay at least 15% more in income tax than the rest of the UK.

“It will also inflate house prices and make it even harder for first time buyers to get on the property ladder.

“The 3p rate will cover only half the amount services currently provided by local authorities. To maintain current services the 3p cap will have to come off.

Calling on the Government to ditch its plans, Ms Alexander added, “They are dead in the water.

“This consultation document has been rushed out after months of stalling by the SNP and it shows. There are more holes in it than a piece of Swiss cheese.”

Scottish Tory finance spokesman Derek Brownlee said, “These proposals will unravel under proper scrutiny, and proper scrutiny is what the Government is going to get.

“We do agree with the Government that to have a separate rate of tax in each council area, as currently proposed by the Liberal Democrats, would require an extensive and expensive bureaucracy.”

Scottish Lib Dem finance spokesman Tavish Scott described the consultation paper as a “significant milestone”.

“Scrapping the unfair council tax and replacing it with a local income tax is important to the Liberal Democrats,” he said.

The party have agreed to work with the Government to “build a parliamentary majority in favour of change” and overcome council tax supporters.