Premier Dalton McGuinty has expressed strong objections to the tax-the-rich proposal of the New Democrats, putting him at odds with many of his own cabinet members.
But with NDP Leader Andrea Horwath now abandoning another major proposal in return for her party's support of the governing Liberals' budget, it will be easier for the two sides to strike a deal.
Sources close to the talks between the two parties said a majority of Liberal cabinet members support Ms. Horwath's proposal to create a new tax bracket for people who earn more than $500,000. However, Finance Minister Dwight Duncan has sided with the Premier, preferring spending cuts over new taxes, the sources said.
Ms. Horwath will not say whether her tax proposal is a make-or-break gambit. But by abandoning, for now, her calls for relief for electricity consumers, she is signalling that her main interest is in propping up the minority Liberal government.
Ms. Horwath announced the concession at a news conference on Thursday, saying she is no longer calling for removing the provincial portion of the harmonized sales tax from home heating bills because Mr. McGuinty "strongly opposes" the idea.
"I think she did the right thing," a Liberal insider said. "We're trying to negotiate an agreement on a package of proposals, and that was one that was certainly not acceptable to the government. The fact that she dropped that means it's going to be easier to reach an accommodation."
Mr. Duncan also told reporters that the NDP made a "significant" concession. But he struck a more cautious note, adding that there are still "significant points of difference" between the two parties.
Ms. Horwath made the concession as talks between the Liberals and NDP head into the final stretch before Tuesday's confidence vote on the provincial budget. The government needs the support of the NDP to pass the budget – and avoid a snap election – because the Progressive Conservatives have already said their entire caucus will vote against it.
Liberal insiders have said all along that removing the provincial portion of the HST from hydro bills is a non-starter. Mr. Duncan has said the proposal goes against the NDP's own policies because it would benefit the wealthy with large homes the most.
"We have not given up on this and we won't give up," Ms. Horwath said, in stressing that she is not abandoning the proposal altogether. She is merely putting it aside for now, she said, in the interests of avoiding an election just six months after voters went to the polls in Ontario.
Her main proposal consists of the new tax bracket – one that many Liberals say is a no-brainer, especially since public opinion polls show widespread support for having the wealthy share more of the burden. Mr. Duncan acknowledged in a recent interview that the Liberal caucus is divided on the topic.
Ms. Horwath accused the Liberals of "dragging their feet" on the talks between the two parties, saying "we haven't seen enough movement."
The NDP has calculated that the new tax bracket would raise annual revenues of $570-million. The Liberals dispute that figure, saying it would raise revenues of only $440-million.
The NDP had initially said the bulk of the new revenue should be used to remove the HST from hydro bills, with smaller amounts going toward creating new day-care spaces and providing more financial support for disabled Ontarians.
Ms. Horwath demurred on Thursday, when asked if the money earmarked for the HST should be used instead to help reduce the deficit, which is pegged at $15.3-billion.