Budget Surplus vs Budget Deficit
A budget is a financial document, which forecast the future income and expenses, further it illustrates the ways in which income is going to be received, and how that received income is going to be shared or allocated among the expenses that are to be incurred. Budget can be prepared by an individual, small business, company, or the government. However, the purpose of preparing a budget and the amount of budget differ in each one. In general, budget prepared by a company is an internal document of that company, and it facilitates the management to make effective and efficient decision. When government prepares budget it is not an internal document any more, instead, it is made available to public and arguments are held on the proposed budget among members in the parliament before it is passed. The government budget is considered more throughout in this article.
The amount by which future spending of an individual, a company, or a government exceeds its income over a future period of time is called budget deficit. It is also known as deficit spending. The excess amount either can be reduced using some cost cutting methods or borrowed from somewhere else. The main source of income for government is tax. In case of a government, it usually goes for borrowing because the expenses of government are not reducible as they are essential expenses that ensure harmony, healthy and safe life of the human beings in the country. Government may issue bonds to raise money from the public. In general, almost all developing countries in the world have some budget deficit in every financial year. Early budget deficit, cyclical budget deficit, and structural budget deficit are the main types of the budget deficit.
On the other hand, when income exceeds planned expenditure the excess amount is called budget surplus. Budget surplus is generally seen as a good sign of a healthy economy and the government is being run well. However, a government needs not to maintain budget surplus; that is, not having budget surplus doesn’t always mean that the economy of the country is in critical situation. Simply, budget surplus implies that the government has extra fund; this fund must be utilized to retire debts, which will reduce the interest payable, and will be very helpful in the future.
What is the difference between Budget Surplus and Budget Deficit?
Some of the main differences between budget surplus and budget deficit are listed below.
• A deficit budget situation means that the expenses of a government has exceeded the tax income during that period, whereas a surplus budget scenario means that the tax income of a government exceeds its expenses.
• In general, budget deficit is very common, while budget surplus occurs rarely.
• During periods when budget surplus occurs tax reduction may be granted, but which is not available during budget deficit periods.
• Interest rate on and treasuries and securities will be high during the period of budget surplus, which is not common during budget deficit period.
• Spending of a government will be high when there is a budget surplus, where as saving, cost cuttings, and borrowing will be high when there is a budget deficit.