TORONTO - The Ontario government says it will cut small business taxes by a half billion dollars over the next seven years in a move that softens the blow of planned minimum wage increases.

The plan is part of the provincial budget tabled Thursday and will reduce business education taxes in municipalities, many of them rural, by a total of $540 million by 2014.

The tax, charged to mostly small businesses on their properties, generates $3.5 billion each year to help fund elementary and secondary schools in Ontario -- a shortfall the government says it will compensate for through direct transfers to school boards.

The lower property tax plan will cover 321 municipalities or more than 500,000 businesses, the government said.

The move comes as the Liberals said they would boost minimum wage to $10.25 per hour by 2010 through an annual increase of 75 cents over three years, starting March 31, 2008.

"The $540 billion reduction in business education taxes are going to be a direct positive economic and financial benefit to manufacturers,'' said Finance Minister Greg Sorbara.

Sorbara said the plan works hand-in-hand with an effort to help the struggling manufacturing industry by lowering the loan application threshold to projects that are either worth $25 million or have 100 employees.

Conservative leader John Tory called the seven-year business tax cut plan "a deathbed repentance'' made by the Liberals.

"It's a promise made at the last minute solely to try to win electoral favour,'' he said. "Seven years is a long time to have these kinds of things phased in.''

The budget also proposes to speed up the gradual elimination of capital taxes for big business by two years to July 1, 2010, from its initial target date in 2012.

NDP leader Howard Hampton attacked accelerated plan, saying that the government is favouring banks and financial institutions while the new minimum wage increases still fall below the poverty line when inflation is considered

"It shows once again that the McGuinty government is very happy to speed up the accommodation of institutions and individuals who are already well off,'' he said.

Last year, unemployment hit a five-year low of 6.3 per cent as a strong economy inflated the workforce.

This year, the government predicts jobs will climb by 71,000 or 1.1 per cent, from an increase of 95,000 last year.

The increased job hires will likely be helped by heightened exports, which are predicted to rise by 1.5 per cent this year, the report said.

Auto industry sales are expected to be flat, from a four per cent drop last year, as Canadian plants roll out new models.

Ontario's economy relies on exports for two-thirds of its income, with 70 per cent of that coming from international buyers.

The budget also outlined plans to invest in a series of "green'' auto industry programs, including the decision to match a nearly $6 million investment made earlier this month.

The government said it would put the money towards the Ontario BioAuto Council, which was created to beef up environmentally friendly technology in the auto manufacturing industry.

On March 8, Premier Dalton McGuinty said he would invest $5.9 million into a plan to convert local harvest into usable materials for fuel.

In the budget, the Liberals said more than $30 million will be given to various universities to research and develop alternative fuels and other bio-technologies, including a $3 million grant to the University of Ontario Institute of Technology for hydrogen technology studies.

Sorbara told reporters that the plan was to make Ontario, already a major player in the auto industry, into a leader for eco-friendly vehicle innovations.

Also proposed is a new life income fund for seniors that have transferred their retirement savings from employment pension plans to unlock up to 25 per cent of their money.