TORONTO - Ontario families earning less than $160,000 a year will get $1,000 from the Liberal government as the province merges its sales tax with the five per cent GST, provincial sources said Wednesday night.

The money will be delivered in three separate cheques to help people cope with the change to a single, 13 per cent sales tax that will be formally announced in Thursday's Ontario budget, but will not take effect for at least several months, the sources said.

"Families can use the money to buy something, pay down debt or save it," one source said about the sure-to-be-popular government handouts.

Many items currently exempt from the eight per cent provincial sales tax -- diapers, children's clothes and shoes, books, feminine hygiene products and new homes priced under $400,000 -- will maintain the exemption, the sources said.

It's not known if the $1,000 and the PST exemptions will be enough to satisfy critics, especially the opposition parties, who say harmonizing the two taxes will result in another tax hike and therefore another broken promise by Premier Dalton McGuinty.

However, the deal between the federal Conservatives and Ontario's Liberal government to harmonize their taxes shows just how dramatically the recession has turned former foes into political and economic allies.

Ontario's budget will in many ways mirror what federal Finance Minister Jim Flaherty did in January: going deep into debt to help pay for a massive stimulus package in hopes of getting the economy back on track.

Business groups and the federal government have been pressing Ontario for years to harmonize the PST with the GST.

The Ontario Chamber of Commerce estimates the move would save companies in the province $100 million a year by cutting the red tape involved in paying the two taxes and allowing deductions for the PST, and not just the GST, on new business equipment.

Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador have already harmonized their sales taxes with the GST.

Earlier Thursday, opposition critics warned McGuinty he would be making a big mistake by harmonizing the taxes during such a difficult economic time.

"Premier, you already have the folks in this province by the throat," interim Opposition Leader Bob Runciman charged in the legislature.

"How much tighter are you going to squeeze them?"

Proponents of having a single tax say the increased cost to consumers will eventually even out as businesses are able to afford to reduce the costs of their goods and services.

McGuinty said the budget would have two main objectives: to help families weather the recession, and to help businesses prepare for the eventual return to a period of economic growth.

"We will find ways to provide better supports to Ontario families," he said.

"We're going to take measures at the same time to strengthen the economy because we know that unless we enhance our capacity to do so, we are going to place our public services at risk."

The government has already unveiled key components of the budget, including a $27.5-billion infrastructure program and an $18-billion deficit over two years to help pay for the economic stimulus package.

Details will come in the budget document, but it's already known that transportation projects will get the bulk of the infrastructure spending at $9 billion, another $7 billion will be spent to repair and upgrade hospitals, and education will get $4 billion for school improvements.

McGuinty said the budget will also include a plan to get Ontario out of deficit.

"There is a concerted global effort on the part of national and sub-national jurisdictions to find ways to stimulate the economy," he said.

"That necessarily means higher deficits than usual, and that's compounded by the fact that governments like ours don't want to make cuts to our schools and our hospitals, so we're going to run a significant deficit."