Updated: Wed Dec. 17 2008 3:01:48 PM

The Canadian Press

TORONTO — Banks making dire predictions that jobs could be lost if Ontario doesn't slash business taxes should instead look at what they can do to jump-start Canada's stalled economy, Premier Dalton McGuinty said Wednesday.

It's no surprise that Canadian banks are advancing their cause as being the "ultimate solution in the face of a global economic crisis," but cutting taxes isn't the answer, he said.

The banks, which already benefit from lower capital taxes, are asking for a $2.5-billion tax break that will damage the province's ability to climb out of a looming deficit, McGuinty added.

"Getting into deficit is no problem, getting out is the challenge," he said.

"So we want to make sure that we don't get in so deep that it becomes just extraordinarily difficult to get ourselves out of that predicament."

The premier was firing back at the Canadian Banking Association, which is urging Ontario to lower its corporate income tax rate to 10 per cent from 14 per cent -- the third highest in Canada.

In a pre-budget submission posted Wednesday on its website, the association argued that the tax cuts are necessary to boost the province's productivity.

"Productivity is the key to maintaining and sustaining a robust economy characterized by a high standard of living and a large number of high-quality, high-paying jobs," it states.

Toronto is the third-largest financial services centre in North America and the banks provide high-skilled jobs to almost 144,000 Ontarians, the group notes.

A spokesman for the association said the submission never referred to the possibility of job losses and isn't asking for tax cuts this year.

Rather, it's calling on the province to create a "long-term plan to become tax competitive," Andrew Addison said in an email.

McGuinty has repeatedly rejected calls to slash business taxes, even when it came from his own task force on economic competitiveness.

His resistance sparked a war of words with the federal Conservatives earlier this year, prompting Finance Minister Jim Flaherty to bestow Ontario with the dubious distinction of being "the last place" to invest in Canada.

McGuinty wouldn't back down Wednesday, and even took a veiled shot at have-not provinces for slashing taxes on Ontario's dime.

"This year, we're sending $23.5 billion to Ottawa for distribution in the rest of the country, some of which helps other provinces reduce their taxes below our levels," he said.

"It would be helpful if the Canadian Banking Association made passing reference to that unfairness."

The banks should also remember that they have a role to play in boosting the troubled economy, such as easing the credit crunch by passing on the full interest-rate cut made by the Bank of Canada to consumers, he said.

Last week, the major banks only lowered their prime rate by half a percentage point to 3.5 per cent, even though the Bank of Canada lowered the rate of overnight loans between banks by three-quarters of a percentage point to 1.5 per cent.