Quebec would be making a mistake if it ordered a freeze on electricity rates or suspended gasoline taxes, claims Institut du Québec (IDQ) President Mia Homsy.

Quebec's fiscal room for manoeuvre is not as great as the short-term public finance improvements would have us believe, she warns.

It is possible that the government could reach a balanced budget as early as fiscal 2023-2024 before making payments to the Generations Fund, states a report published Thursday by the IDQ.

However, the institute adds that could be short-lived as the Quebec budget could turn red as early as 2027-2028 due to the aging population.

"We have room to manoeuvre in the short term, but we must not get too carried away," said Homsy. "There are challenges coming."

The aging population will affect public finances, she insists, noting that the extent of the burden will become clearer in the next few years.

"Demographics play a role on two levels," she explains. "It limits the growth of the GDP and, therefore, the growth of autonomous revenue. The aging population also costs more because it puts pressure on the health care system."

If nothing is done to boost economic growth, the government risks a $10 billion deficit before paying the Generations Fund in fiscal 2032-2033.

Homsy explains if payments to the Generations Fund are taken into account, the deficit would reach $15 billion, taking into account the parameters of the Balanced Budget Act.

The IDQ's warning of a structural deficit comes as many stakeholders are calling for the government to help households cope with inflation as it erodes their purchasing power.

"Many households are in a precarious situation because of inflation," said Québec Solidaire (QS) public finance critic Ruba Ghazal on Monday. "I have people... who tell me about their exploding grocery bill, their rising rent, the Hydro-Quebec bill... Everything costs more."

The Quebec Liberal Party (PLQ) and Québec solidaire have called for a freeze on electricity rates, while the Parti Québécois (PQ) is proposing freezing rates for all Crown corporations.

The Quebec Conservative Party is calling for a temporary suspension of fuel taxes.

The Canadian Federation of Independent Business (CFIB), Option consommateurs and the Association québécoise des consommateurs industriels d'électricité (AQCIE) have also formed a united front to call for a freeze on electricity rates.

"Quebec should help households in other ways," Homsy said. "It's taking targeted measures that will compensate low-income people. There are people who can afford it, to pay more for gas, temporarily."

Premier François Legault's government seems to agree with this approach, as it gets ready to unveil the provincial budget on March 22.

However, Homsy acknowledges that the anticipated increase in electricity rates from four per cent to five per cent in 2023 is an abrupt change.

Criticized by opposition parties for changing how the prices are set, Legault insists the increase will actually be smaller than that.

"The solution is not to freeze rates," said Homsy. "Rate freezes have a long-term effect on government revenue that is difficult to correct because of the political cost of doing so. We should not start mortgaging the next few years. Otherwise, the picture we presented today will be even worse."

-- This report by The Canadian Press was first published in French on March 17, 2022.