CDL's suggestion is obviously the best, and it's the only conceivable option. There's no way that McGuinty should be expected to commit political suicide by raising the PST, especially when a tax hike for the universally popular cause of health care caused such an eruption.
It would be more cumbersome than just handing over a 1% share, but leaving up to the municipalities is the only practical approach. It's also fairer. If the elected officials in, say, Waterloo don't feel the need for a municipal sales tax, there's no reason why they should levy one.