OTTAWA - The federal government and Quebec are closing in on a deal to compensate the province for harmonizing its sales tax a decade ago, The Canadian Press has learned.

Such an agreement, that would potentially send billions of dollars to Quebec, could help keep Prime Minister Stephen Harper's Conservative government afloat longer.

That's because the Bloc Quebecois would be hard pressed to vote down the next federal budget if it included HST funding for Quebec _ something Quebec politicians have spent years lobbying for.

Sources say talks have been picking up steam. Finance Minister Jim Flaherty had dinner with his Quebec counterpart, Raymond Bachand, this week and the issue was discussed.

When asked whether the talks were coming to a head, Flaherty would only say they are progressing.

"I had a further discussion with Minister Bachand this week and I think we made some progress,'' Flaherty said Thursday. "We're not near completion, but we've made some more progress which is good.''

Catherine Poulin, a spokeswoman for Bachand, said she couldn't go into detail about the talks.

"Discussions continue, the ministers are talking, but it's not over... We're not ready to make an announcement yet.''

Deal could ease pressure to fund hockey rink

The deal could also help take the pressure off Harper to fork over money for a new Quebec City hockey arena _ something even the city's Bonhomme Carnaval jokingly raised with Harper during a photo-op Thursday on Parliament Hill.

The federal government gave Ontario $4.3 billion and British Columbia $1.6 billion to help their transitions to a harmonized sales tax this year.

Quebec has demanded up to $2.6 billion in compensation for harmonizing its sales taxes in the 1990s. But Ottawa has argued that the taxes were never fully harmonized, with Quebec operating an independent tax system.

A deal would see Ottawa collect the taxes and send Quebec back its share, instead of the other way around.

Harmonizing the taxes proved to be a politically costly exercise for the B.C. government, which is still feeling the public's wrath over the change. Premier Gordon Campbell announced his resignation earlier this month in the wake of the controversy and internal caucus dissent.

The federal NDP have vowed to make it an issue in the next election, in B.C. and in Ontario, where the public reaction has been more muted.

The Conservative government, meanwhile, has not felt any of the HST backlash.