TORONTO - Ottawa's finance minister wants Ontario to cut business taxes at the expense of health care and education funding, Premier Dalton McGuinty said Tuesday as he called for Prime Minister Stephen Harper to weigh into the escalating war of words between the two levels of government.

While Federal Finance Minister Jim Flaherty isn't backing down from his dire prediction of Ontario becoming a "have-not" province if the Liberals don't cut taxes, McGuinty said Ontario voters have "already seen that movie" when Flaherty was the province's finance minister and "they didn't like the ending."

"I already understand Mr. Flaherty's position - that's why I wrote to the prime minister," McGuinty said as he rolled out the province's $1 billion Next Generation Jobs Fund to boost investment in Ontario.

"It would be nice to hear from the prime minister in this regard."

McGuinty and Flaherty have been trading increasingly nasty and personal pot-shots in recent days over how to handle Ontario's increasing economic woes.

One of McGuinty's ministers called Flaherty a "cartoon character" while Flaherty recently told a business audience that Ontario's high business taxes make it the last place in Canada to start a business.

In a letter sent to Harper on Sunday, McGuinty accused Flaherty of undermining confidence in Ontario and failing the province by not using the hefty federal surplus to stimulate Ontario's economy.

Flaherty responded in kind Monday, saying his comments weren't a personal attack but "a wake up call" as he urged McGuinty to use the coming budget to slash business taxes.

Federal Conservatives familiar with the party's election campaign preparations say Flaherty's attacks on McGuinty are strategic and well thought out. The loss of manufacturing jobs in Ontario will be an issue in any coming federal campaign, so Conservatives are keen to pin the blame for the struggling economy on McGuinty's shoulders.

Conservatives are equally eager to frame the coming election debate over which leader is better able to manage the economy since it's one place where Harper polls ahead of his party, sources said.

In question period Tuesday, Flaherty continued his attack on Ontario's high business tax rate.

"The problem in Ontario is that they have the highest taxes on new business investment in Canada," said Flaherty, noting Ontario has been singled out as having the highest business taxes in North America. "You know those taxes are bad."

But slashing business taxes to stimulate the economy is an approach that has already been rejected by Ontarians, McGuinty said.

"The only way for us to aggressively pursue more business tax cuts - given that 75 per cent of all of the money that we spend here going into health care, education and social spending - is to make cuts to those areas," McGuinty said.

"I've said it before, I'm not prepared to close hospitals. I'm not prepared to reduce funding for textbooks and I'm not prepared to cut social assistance again."

Critics said the mud-slinging between the levels of government isn't helping anyone.

Roger Martin, dean of the Rotman School of Management at the University of Toronto, said neither tax cuts, government subsidies or political feuding alone will solve Ontario's economic woes.

Ontario's economy requires a holistic approach which includes some tax cuts and strategic investment, he said. Some observers may be dismissing this ongoing spat as "politics as usual" but it will soon take its toll on confidence in the economy, Martin said.

"If this were to go on for months, then I think it would be damaging," said Martin, adding both levels of government will suffer as a result.

"The key is for them to settle down."

NDP Leader Howard Hampton said while the Liberals and federal Conservatives trade barbs and point fingers, people are still losing their jobs and the economic downturn seems to be getting worse.

"This is just a wasted war of words," he said. "Neither of them are doing anything effective to sustain and maintain manufacturing jobs in Ontario . . . The loss of good manufacturing jobs is accelerating. It's a war of words with no effective action being taken."