A pension shortfall of more than C$7bn is a major barrier to a cost-cutting deal between the Canadian Auto Workers (CAW) union and General Motors of Canada, a newspaper reported on Wednesday.

According to Toronto's Globe and Mail, Canada's federal government in Ottawa believes the province of Ontario - home to the country's auto industry - has jurisdiction for settling the pension issue, and must also contribute one-third of the overall loan package that Canada could provide in collaboration with the US government.

But Ontario officials maintain that the pension deficit is part of GM Canada's overall financial problems and needs to be solved as part of the overall restructuring package.

According to the paper, Canadian premier Dalton McGuinty acknowledged yesterday that the cost of saving GM's Canadian operations may be higher than he had anticipated, after Ontario helped with the $3.8bn assistance provided to Chrysler last month.

Everyone involved in the GM restructuring should apply the lessons they learned by going through a similar exercise with Chrysler, McGuinty was quoted as saying.

"We came to the table with more money than we initially anticipated we'd have to come with for Chrysler."

The Globe and Mail said industry minister Tony Clement has insisted federal taxpayers will not bear GM Canada's pension shortfalls, which are regulated and guaranteed by the province.

"All of the parties - the unions, GM, US Treasury and the Canadian and Ontario governments - are working together to try to keep GM viable now and sustainable in the long term," a source told the paper, which added that the federal and provincial governments will decide how much money they are prepared to lend GM once the company and the CAW present their plans for restructuring the company's operations and cutting overall labour costs.

Minister meeting US officials next week