Fearful of a brewing taxpayers' backlash, the Ontario government is retreating from plans to impose the new HST on coffee, newspapers, and fast-food value meals.

Despite Premier Dalton McGuinty's repeated claims that the cash-strapped province, which has a record $24.7 billion budget deficit, could not afford to exempt much from the 13 per cent harmonized sale tax, the Liberals are capitulating.

Under the hastily announced change, restaurant meals costing less than $4 and newspapers will continue to only be subject to the 5 per cent federal GST.

"Not applying the provincial portion of the HST to newspapers and qualifying prepared food and beverages sold for a total of $4 or less would save money for all Ontarians on a daily basis," Finance Minister Dwight Duncan said Thursday at a Tim Hortons outlet on Islington Ave. in Etobicoke.

The move will cost the provincial treasury $325 million.

Revenue Minister John Wilkinson stressed the overall package, which includes income tax cuts for most Ontarians and rebate cheques for low- and middle-income people, will boost the economy.

"Millions of Ontarians who buy their morning coffee would benefit from today's announcement, but the greatest benefit to all Ontarians would be the additional jobs created as a result of our tax package," said Wilkinson.

That means the 8 per cent provincial sales tax portion of the HST, which blends the two consumption taxes as of next July 1, will not be slapped on your Tims "double-double" or your tall Starbucks latte.

While there wasn't exactly a Boston Tea Party-style revolt in the offing, the Liberals were concerned that such an in-your-face tax being paid every morning by people in every demographic could be politically damaging.

In that vein, the government is also giving a similar exemption for newspaper subscriptions.

Thus far books, feminine hygiene, diapers, children's clothing, and kids' booster seats had been the only exempted products.

However, taxes will still increase on gasoline, home heating fuel, taxis, legal services, golf green fees and hundreds of other items.

Progressive Conservative MPP Peter Shurman (Thornhill) said the change proves that anti-HST pressure from opposition parties is working.

"It says that Dalton McGuinty was misleading Ontarians all along in saying there was no room for motion," said Shurman, adding it's proof the HST was half-baked.

"They didn't get it right the right the first time with the entire concept of this," he said, emphasing the Tories would continue to fight the tax.

Tory revenue critic Lisa MacLeod agreed that the Liberals are feeling the heat.

"By backtracking, the McGuinty Liberals are proving public pressure is working," said MacLeod (Nepean-Carlton).

NDP Leader Andrea Horwath suggested the Liberals were being cynical.

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"The government can sugar-coat this all they want, but there's no getting around the fact that families are going to see the costs of everyday purchases going way, way up — even if the government is kind enough not to increase the taxes on coffee and doughnuts," Horwath said in a statement.

"Ontario may not have a new doughnut tax, but there's still a big hole in the government's plans to raise the taxes of nearly every Ontarian," she said.

"If the government wants to give Ontario families something they can swallow, they should do the right thing and announce they're canceling the HST."