OTTAWA–Today's federal budget is expected to announce a surplus at least $1 billion higher than expected, ratcheting up the pressure on Finance Minister Jim Flaherty to meet the demands of Ontario's jobless and cash-strapped cities.

The surplus, originally pegged at $11.6 billion for the fiscal year ending in March, will now ring in at $13 billion or more. Of that, $10 billion will go to debt reduction.

But the windfall gives some room to dole out "surprises" in what was otherwise expected to be a bare-bones financial blueprint.

Last night, a senior Ontario government official said that if Ottawa has extra money it should be used to soften the blow of the heavy job losses in the province's manufacturing sector. "They should be using that money to help grow jobs in Ontario" by joining with the province's Next Generation Jobs Fund, the official said.

But that seems unlikely. Earlier in the day, Flaherty dismissed the call from Queen's Park for increased Employment Insurance benefits for the province's unemployed.

Flaherty charged that there are jobless Ontarians already collecting EI who shouldn't be.

"There is a concern about the way Ontario calculates it (EI) because they include people who are not entitled to unemployment insurance," Flaherty said during a pre-budget photo op.

An official in Flaherty's office was unable to explain what exactly Flaherty was referring to, but it was clearly a continuation of his war of words with Canada's most populous province.

"The biggest threat to the Canadian economy is a finance minister who doesn't understand our economic engine," the Ontario official said.

Flaherty, who hands down his third federal budget today, criticized Premier Dalton McGuinty for failing to cut business taxes and brushed aside the complaint Ontario doesn't get a fair shake when it comes to EI.

The Ontario government has argued for the need to reform EI given that only 30 per cent of Ontario workers who lose their jobs qualify for EI benefits – versus about 80 per cent across the country – and those who do receive only about $5,110, compared with $9,070 in the rest of Canada.

"We want fairness for our workers, who if they lose their job, receive $4,000 less in employment insurance benefits than workers in other provinces. That's not fair and we're looking for redress," McGuinty said yesterday in Toronto.

Flaherty told reporters that one day McGuinty is going to wake up and understand he's part of Ontario's economic woes.

"The biggest problem in Ontario is that they have the highest taxes on new business investment in Canada and the premier seems unable to understand that," he said.

"Some day that is going to dawn on him that there is a relationship between bad fiscal policy in the province of Ontario and business not growing in the province of Ontario."

Inside the House of Commons and out, politicians attacked the Conservatives for criticizing Ontario, where thousands of jobs have been lost in the past few years, fuelled by a high Canadian dollar and a weakened U.S. economy.

"Why does the federal finance minister continue petty attacks against the Ontario premier and thumb his nose at the hardships faced by hard-working Ontario families?" said Liberal MP Sue Barnes (London West).

Liberal MP John McCallum (Markham-Unionville) said he found it puzzling that the federal government subsidizes the aerospace industry, based mainly in Quebec, when it refuses to assist Ontario's ailing auto industry.

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"It would be consistency and fairness to the people of Ontario. Why does the minister insist on policies that are flagrantly unfair to the people of Ontario?" McCallum said.

With files from Kerry Gillespie in Toronto