Firstly, what does a budget mean? A budget is a totaling of income and expenditures for a certain amount of time and is always gathered together and reviewed from time to time. Budgets can be created for an individual, a set of persons, a company, or a government.
Budgeting is essential to manage your daily, weekly, and monthly expenditures, plan for unexpected incidents, and be able to pay for things without running into deficit.
An individual does not have to be great at math to monitor his earnings and expenses. This does not also imply that he can not purchase items he wants. It only means that he will keep track of where his money goes. The aim is for one to give bigger control over money.
In this article, we will be treating the government budgets and their types.
A government budget is a document that shows expected revenues and planned expenses for a fiscal year. This often needs legislative agreement.
There are three types of budget. There is a surplus budget, a balanced budget, and a deficit budget.
The Surplus Budget: This is where the calculated income or receipts surpasses the calculated expenses in a certain fiscal. To explain it more easily, it is when the revenue the government generates in a year, mainly from fees, taxes, and other sources of income are higher than the amount the government spends on the general public.
Without an in-depth look, a surplus budget may make a country appear like it is operating well and it is wealthy.
The government can pay for its outstanding fees and make its interest loans, deficit, and pending loans lesser with additional financial reserves.
Although, deflation can be the aftermath of reducing Debt. Reduction of debt can also influence the behavior of customers. In a situation where the consumer's finances are most often on taxes, he will have a lesser amount to spend. When expenses reduce, it can affect companies and businesses negatively. This condition can in turn affect the pace of the economy.
Finally, a budget surplus is useful in periods of high inflation although can have negative impacts if used for a long time.
Balanced Budget: This is where the totaled expenses of the government are the same as its calculated revenue in a certain fiscal. This type of budget aims to spend according to an individual's budget. Economists refer to it as the ideal budget. A government strives to not spend beyond the fixed income for the year. Nevertheless, due to the inflation, price instability in the nation, and other sudden factors, it may be impossible or difficult to use a balanced budget.
It is easier to plan this budget theoretically than to carry it out in real life. Finally, if carried out without error, a balanced budget makes sure the economy Is stable and puts the expenses of the government in check.
Still, a balanced budget will probably not provide a solution to some constant issues such as unemployment.
Deficit Budget: It is a budget in which the totaled expenses of the government us more than the revenue that is expected. The spending of the government is more than its revenue In this situation. Consequently, it is likely to incur more loans and debts. The government may have to depend on its extra financial reserve or make the tax rates higher.
However, a deficit budget can come with favorable effects for growing countries. For example, the first sign of a deficit budget is the government's revenue mostly towards pension programs, healthcare, and infrastructures. A positive side to the deficit budget is it can reduce tax rates and increase the availability of jobs in a recession.
While the government is saddled with the responsibility of boosting chances of employment, there will be a boost in the demands for goods and services as the result. The impact of this is that a slow economy will be faster. Although, how a long-term surplus budget has its disadvantages, a long-term deficit budget also has its.
The big question is what makes the government budget important? One might also question if it is important.
Below are some reasons or advantages of a government budget in an economy: