Ontario's Premier Dalton McGuinty defended his government's new budget as a necessary step to putting the province's business environment on a more competitive footing -- and warned that a 2010 hike in the minimum wage might be delayed.

"We need to change our tax system. We need to catch up to the 130 other countries. We need to catch up to four other provinces," he said Friday in Ottawa after his government tabled a budget Thursday that will spend 109 billion and run a $14.1 billion deficit.

"We need to start giving our businesses the advantage they enjoy in those other countries and other provinces. There is no easy way forward. If there was, somebody would have pointed it out by now."

McGuinty also said the province will raise the minimum wage to $9.50 per hour this year, up from $8.75, on Wednesday. But the scheduled 2010 increase to $10.25 per hour may be delayed depending how the economy is doing.

The head of a local Ottawa business association, approved of McGuinty's possible delay.

"That doesn't sound like much, but if you've got 75 employees working eight hours a day, it really impacts the bottom line," said Lori Mellor.

Progressive Conservative finance critic Tim Hudak called McGuinty's statement an embarrassing lack of leadership.

NDP Leader Andrea Horwath described it as outrageous that the government might consider curtailing a wage increase for low-income people while the government is preparing to raise their taxes through harmonizing the retail sales tax with the federal GST.

But Finance Minister Dwight Duncan said the premier is simply reserving the right to review the planned increase, noting the current economic crisis demands flexibility.

In the budget, the government predicted the economy will stop contracting by mid-year and start growing again in the third quarter. It predicted moderate growth in 2010 and a return to solid growth in 2011.

Tax changes

On July 1, 2010, the province's tax system will change dramatically.

The major change is the harmonization of the province's eight per cent Retail Sales Tax with the five per cent federal GST.

To ease the transition, Ontario will be spending $4.3 billion it got from the feds to provide one time payments over a 12-month period starting in 2010. Families with an income of less than $160,000 annually will get up to $1,000, while singles will get up to $300 if they have an income of less than $80,000.

The last payment will come in June 2011. Ontarians will go to the polls that fall under the province's fixed-election-date law.

On Thursday, both opposition parties characterized the payments as a bribe.

The move will ease the regulatory and tax burden on businesses, but shift it to consumers by taxing a much wider range of goods and services.

Some examples:

• Gasoline
• Home heating oil
• Fast food under $4
• Tobacco
• Haircuts, pedicures
• Real estate commissions
• Gym memberships
• Taxis, newspapers, magazines
• Movie tickets, internet fees
• Postage stamps

The province will make the following exemptions:

• Books
• Diapers, children's clothing and footwear
• Child booster seats
• Feminine hygiene products
• New homes under $350,000

Businesses will see about $4.5 billion in tax savings between the sales tax change and cuts to corporate taxes over three years, something the province believes will help boost exports and jobs.

The province estimates it will provide $10.6 billion in tax relief for people over three years, including a permanent $260 sales tax credit for low and middle-income individuals, more property tax credits to low and middle-income homeowners and tenants, and reductions in personal income tax by reducing the first bracket rate to 5.05 per cent.

Finance Minister Dwight Duncan told reporters Thursday that Ontario tax revenues would be reduced by $2.3 billion over four years by the combined measures.

Former New Brunswick premier Frank McKenna, a Liberal who merged his province's sales tax with the GST in the 1990s, said Friday that McGuinty deserves "full marks for guts" for proceeding with privatization.

Although it's a risky politically risky move, McKenna said harmonizing ultimately helped his former province's economy create jobs.

The move also draws the approval of federal Finance Minister Jim Flaherty, who has been pushing provinces to harmonize and who had been sniping at the Ontario Liberals to cut business taxes. In early 2008, he said Ontario would be the last place people would want to invest because of its business taxes. Flaherty concluded the deal with the Ontario government on March 10.

Of his newfound peace with the federal Tories, McGuinty said, "I think we should lay weapons down."

With a report from CTV Toronto's Paul Bliss and files from The Canadian Press