HALIFAX - A scant six months after his historic election win, Atlantic Canada's first NDP premier says he faces a "daunting task ahead" as he grapples with a faltering economy, potential labour unrest and a province that is more than a half billion dollars in the red.

There's little doubt the political stakes will be high for Darrell Dexter in 2010 as he attempts to steer Nova Scotia through its first deficit in eight years.

Dexter and the NDP were swept to power in June partly because of promises to balance the province's books this spring without raising taxes or cutting spending.

But shrinking sources of revenue, partly brought on by dwindling offshore gas royalties, coupled with a $525-million deficit have forced Dexter to retreat from those promises while warning of tax hikes and program cuts to come.

"What we found was wholly and substantially different from what we expected," Dexter said in an interview.

Nova Scotia could face a $1.3 billion annual deficit by 2012-2013, adding to an accumulated debt that could balloon to $16 billion that year -- a $4 billion increase in three years -- according to an independent review on the province's finances released in August by Deloitte and Touche LLP.

"One of the most sobering days in this office was the first day we saw Deloitte because that was the point in which we realized that things were extraordinarily out of balance," said Dexter.

He said he has no illusions about the task he faces in righting the province's fiscal mess, reeling off a list of problems that would make most politicians cringe.

"We have the highest HST in the country, we have the highest income tax rates in the country, we have the highest corporate tax rates in the country and we have the highest debt per capita in the country outside of Newfoundland who now have more resources to deal with it," he said.

Although Dexter has offered few specifics so far on how he plans to dig out of the red, he has made it clear that the spring budget will dominate his government's agenda.

It will be tabled after a period of public consultation that was announced following the release of a report in November by a three-member economic panel.

The panel advised the government to consider a two percentage point hike in the HST and targeted spending cuts to deal with the deficit and the economic conditions created by the global recession.

Finance Minister Graham Steele has said his department is looking at increasing the HST, which stands at 13 per cent.

Sensing an opening after Dexter's reversal on his major campaign commitment, the opposition parties have been quick to pounce on what they say has been a lack of action by the NDP in its first six months in office.

Liberal Leader Stephen McNeil believes tax increases and some service cuts are on the way in the new year, but says what's needed is a comprehensive tax review with the intent of turning Nova Scotia into a more competitive business environment.

He said a mixture of tax cuts and tax credits should be part of the solution, but he questions whether the New Democrats will ultimately make the decisions he believes are required to move the economy ahead.

"They've got a window here," said McNeil. "They can make some decisions which will have long-term benefits for the province, but they have to do it by looking at how we are going to be competitive as an economy."

Interim Conservative Leader Karen Casey expressed concerns about impending tax increases, calling such a measure "no way to stimulate an economy."

She also said ongoing contract negotiations with more than 25,000 civil servants poses a potential threat to provincial programs.

But Jim Bickerton, a political scientist at St. Francis Xavier University, believes labour unions as longtime allies of the NDP may be inclined to cut the government a little slack -- at least in the short-term.

He says the voting public is also ready to accept tough measures and even a few broken election promises, as long as the government proves itself to be a shrewd steward of the province's finances.

"It's important that if they are going to break the balanced budget promise that it be done in a way that is defensible in the long-term and that makes them appear to be responsible caretakers of the public purse," said Bickerton.

He also said that deserved or not, there is still the public perception that Dexter's careful and methodical style makes for a steady government.

"The public's unhappiness with the previous (Conservative) government was based on a perception of incompetence," said Bickerton.

"I think more than anything that probably explains the success of the NDP in getting elected."