TORONTO -- Ontario's new Liberal government will have to both run a deficit and raise taxes if it has any intention of keeping a core election promise to improve public services, a report being released today concludes. The economic analysis for the left-leaning Canadian Centre for Policy Alternatives comes as the government gets set to outline a process that will include public consultations in preparation for its first budget this spring.

"The government will have to choose whether to deliver on its signature campaign commitments of reinvestment or to sacrifice those commitments in order to deliver on its pledge not to raise taxes," said Hugh Mackenzie, the economist who wrote the report.

"Its decision will likely determine whether the election of 2003 turned the political tide in Ontario or merely set the table for a return to the shrinking services of the Harris era."

In the election, Premier Dalton McGuinty signed a solemn pledge to balance the books and hold the line on taxes at the same time as starting to renew a civil service that saw deep cuts under the previous Conservative government.

However, the Liberals say they inherited not only a projected deficit of $5.6 billion for the fiscal year that ends March 31 but what they call a "structural" deficit -- one in which spending continues to grow faster than revenues do.

"We simply cannot deliver on all the responsibilities that we've assumed to date and deliver well," McGuinty said last week.

To deal with the problem, the government has already taken a series of steps such as rolling back corporate taxes and raising tobacco taxes. But the report argues that's not nearly enough, saying the government would still need to cut program spending by $2 billion to balance the books in 2004-05 as it promised to do.