After a landslide Liberal election victory last night, the economists at BMO Nesbitt Burns have issued a special report, teasing out the possible implications for the Ontario economy.

The report, written by financial economist David Watt, suggests that the fiscal realities of the province’s finances may push the new government to start breaking election promises soon.

“Private sector analysts have suggested that the province is currently running a deficit of between $2 billion-to-$4 billion. Credit rating agencies DBRS, Standard and Poor’s, and Moody’s have highlighted the tenuous shape of Ontario’s finances,” Nesbitt warns.

“It stands to reason that the Liberals may choose to change a few of their election promises, once the realities of the fiscal situation become clear,” Nesbitt says. “Among the most controversial Liberal promises is the plan to cancel tax cuts that are already legislated, but that have not been implemented.”

Nesbitt draws attention to the Liberal plan to raise corporate taxes. “They plan to lift corporate taxes to their 2001 level of 14%, from the current 12.5%, generating annual revenue of $550 million, leaving Ontario with higher corporate tax rates than B.C., Alberta, New Brunswick, and Quebec.

The Liberals have also pledged to trash plans to for a 10% reduction in the capital tax that was to take effect in January. “The PCs had planned to phase out this job-killing tax by the time the federal government eliminates its capital tax in 2008,” Nesbitt notes. “There has been a general trend to get rid of capital taxes, which hit businesses no matter how profitable they are and discourage investment.”