An annual financial statement that describes the estimated government receipts and expenditures for the upcoming fiscal year is a government budget. Balanced, surplus, and deficit budgets are the three types of budgets, depending on how realistic these estimates are. The following is a brief description of the three different budget types:BALANCED BUDGET
When projected government spending for a given fiscal year equals anticipated government revenue, the budget is considered balanced. Based on the idea of "living within means," this kind of budget is supported by many classical economists. They held the opinion that government spending shouldn't come out of its earnings.
Even though it's the best way to keep fiscal restraint and attain a balanced economy, a balanced budget doesn't guarantee financial stability during recessions or deflation. In theory, it is simple to strike a balance between projected expenses and income, but in actual practice, this is challenging to do.
Merits of a Balanced Budget
- Ensures economic stability, if implemented successfully.
- Ensures that the government refrains from imprudent expenditures.
Demerits of a Balanced Budget
- Unviable at times of recession and does not offer any solution to problems such as unemployment.
- Inapplicable in less developed countries as it limits the scope of economic growth.
- Restricts the government from spending on public welfare.
SURPLUS BUDGET
A surplus budget would be one if the expected government revenues exceed the estimated government expenditure in a particular financial year. This means that the government’s earnings from taxes levied are greater than the amount the government spends on public welfare. This type of budget denotes the financial affluence of a country. Surplus budget can be implemented at times of inflation to reduce aggregate demand.
DEFICIT BUDGET
If the estimated government expenditure exceeds the expected government revenue in a particular financial year, such a government budget is said to be a deficit budget. This type of budget is best suited for developing economies, such as India. Especially helpful at times of recession, a deficit budget helps generate additional demand and boost the rate of economic growth. Here, the government incurs the excessive expenditure to improve the employment rate. This results in an increase in demand for goods and services which helps in reviving the economy. The government covers this amount through public borrowings (by issuing government bonds) or by withdrawing from its accumulated reserve surplus.
Merits of a Deficit Budget
- Helps in addressing public concerns such as unemployment at times of economic recession.
- Enables the government to spend on public welfare.
Demerits of a Deficit Budget
- Can encourage imprudent expenditures by the government.
- Increases burden on the government by accumulating debts.
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