The budget outcome
Syllabus: Distinguish between a budget deficit, a budget surplus and a balanced budget.
- Budget deficit exists where government income from taxation is less than government spending: R<T
- Budget surplus exists where government income from taxation exceeds government spending: R>T
- Balanced budget exists where government income from taxation equals government spending: R=T
- Fiscal stance refers to the position the government is taking with regard to operating a budget deficit, budget surplus or a balanced budget. Whilst you may think that it would be common sense for a government to always run a budget surplus or a balanced budget, there may be very good reasons for it to deliberately choose to operate a budget deficit (Keynesian expansionary policy)
- National debt refers to the total amount that the government has borrowed over time as a consequence of operating budget deficits.
How much is Brazil's national debt?
Clearly, if there is a budget deficit the national debt is increased by that amount (because extra spending must be financed by borrowing if it does not come from tax revenue).
A budget surplus reduces the national debt
- Public sector borrowing requirement (PSBR) is where total government income (tax revenue and income from public corporations) is less that government spending. It is largely made up of the budget deficit. In such cases, the government has to borrow money to finance the short fall. It can do this by selling national savings certificates and securities such as gilts or treasury bills and bonds.
- Public sector debt repayment is where total government income (tax revenue and income from public corporations) is greater than total government spending. In such cases, the government can repay some its previously accumulated national debt.
What does the data say?
- Using the World Bank website World Bank - data indicators
- Total government revenue
- Total government expenditure
for your country for the most recent 10 years. Put the data into a spreadsheet
- Plot the two data sets on the same graph over time.
- Describe the state of the budget for each of the years.
- Describe changes in the budget over the 10 years i.e. moves from surplus to deficit or vice versa?
- In the event of a budget deficit, identify how this was financed.