Types of Government Budget : Balanced, Surplus & Deficit budget

by Sharoz Dawa | Posted on Wednesday, July 19th, 2017

Government Budgeting Process

What is a government budget? What are the types and what is the meaning of those types? All these questions are answered in this article!

In a modern society and especially in a modern state welfare . the activities of the government are fast expanding and they are trending to cover almost all aspects of the social and economics life of the nation. The government is now an agency of the promoting the general welfare citizen by positive acts. Government budgeting is one of the major processes by which the use of public resources are planned and controlled to attain certain objectives . Budgetary actions of the government affect production, size, and distribution of income and utilization of human and material resources of the country. So the government should prepare a different budget of the various situations is the economy. Public expenditure should be varied according to the requirement and urgencies of the business situations.

According to the government, the budget is of three types:

  1. Balanced budget.
  2. Surplus budget.
  3. Deficit budget.

1. Balance budget – A government budget is said to be balanced when it is estimated revenues and anticipated expenditure are equal. i.e. government receipts and government expenditure.

Well, it implies that the government raises funds in the means of taxes and other means a balanced budget was considered an effective check  on extravagant expenditure of the government.

The government must exercise financial discipline and should keep its expenditure within the available income.

The concept of a balanced budget has been evocated by classical economists like Adam smith . a balanced budget  was considered by them as neutral in its effects on the working of the economy and hence they are regarded it as the best.

However , modern economists believe that the policy of balance budget may not always be suitable for the economy . for instance during the period of depression , when economic activities are at low level , resulting in unemployment.

The government may come to the rescue of the people . it can borrow money and spend it on public works . this will increase employment and total demand for goods and services and encourage investment.

2. Surplus budget – when estimated government receipts are more than the estimated government expenditure it is termed as surplus budget. When the government spends less than the receipts the budget becomes surplus that is.

Estimated government receipts > anticipated government expenditure .

A surplus  budget is used either to reduce government public debt or increase its savings .

A surplus budget may prove useful during the period of inflation . in periods of inflation , although there is greater employment there is also a tendency for prices to rise rapidly.

This has to be checked particularly in the interest of those who have more or less fixed income. This inflationary gap can be corrected by lowering the level of effective demand in the economy . it can be corrected by increasing taxes. This would increase the revenue of the government  but reduce the purchasing power of the people. As a result, the aggregate demand will fall. This inflation gap can be corrected by lowering the level of public expenditure.

The surplus budget should not be used in a situation other than the inflationary gap as it may lead to unemployment and low levels of output as an economy.

3. Deficit budget – when estimate government receipts are less than the government expenditure. In modern economies, most of the budget are of this nature . that the estimate government receipts < anticipated government expenditure.

A deficit budget increases the liability of the government or decreases its reserves.

A deficit  budget may prove useful during the period of depression , economics activities are at a low level . it results in unemployment , business loss and even bankruptcy and inflation etc. the government can borrow money and increase the expenditure on public works through deficit financing . this will increase employment and total effective demand for the goods and also the services which would then encourage investment . thus, a deficit budget is useful for removing depression and unemployment.

Any country in the world is aiming to avoid deficit budget although the  surplus budget is difficult for a country to achieve and that is the reason countries strive for a balanced budget in order to avoid inflation, unemployment , loss or another consequence .

This is all about the types of government budget which are subdivided into 3 that a person should know.

About the Author Sharoz Dawa

Co-founder & Developer at IAS Paper I am a 20-year-old guy from Mumbai (Maharashtra) currently doing Software Engineering.I love helping people and providing free education. Official Website http://www.sharozdawa.comFacebook

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  1. As an Indian Citizen we have to know the budget of central government. Thanks for sharing this useful info Sharoz.

    Keep Sharing.

  2. habinshuti steven says:

    i always follow you and you help me to prepare exams
    thank you so much

  3. Anu Desai says:

    i would like to subscribe for your link and get updated for more important information for my economics NET SET exams

  4. Del Ab. says:

    I found this as useful info. for my presentation

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