Government has a number of policies to execute in the general task of performing its role to meet the goals of economic and social growth. In order to implement these policies, it must expend a huge amount of funds on administration, defense, and expansion, wellbeing projects & a range of other relief operations. It is, therefore, essential that a government identifies and allocate appropriate resources so that they can meet these objectives.
A government budget represents the yearly financial statement in respect to the spending and revenues that will be carried out in a financial year. It is generally approved by the chief executive or President of a country. This document intends to estimate the prospective government revenues for the current year. There are different types of budgets that are designed by the government for a particular fiscal year including:
A Balanced Budget is a condition in which the expected revenue of the government throughout the year is equivalent to its projected expenditure. It can be represented as:
Government’s anticipated revenue = Governments planned expenditure.
This particular type of government budget is based on the strategy of “live within means”. It implies that the government’s proceeds must not fall short of spending. Today most of the countries in the world have discarded the policy of balanced budget; particularly with the amplification in public expenditure. Unbalancing the budget is now more preferable.
This type of the government budget is the one in which the income and expenses are not equivalent to each other. An unbalanced budget can be divided into two diverse forms; surplus budget and deficit budget.
In this condition, the estimated revenues of the government throughout the year are greater than its predictable expenditure. It can be represented in two ways as mentioned below:
Governments projected expenditure ˂ Government’s anticipated revenue
Governments estimated revenue ˃ Governments planned expenditure.
If there is surplus budget, it exhibits the financial security of the government. This kind of budget is generally adopted when there is inflation, as it can reduce aggregate demand.
In modern times, the governments are required to perform multiple responsibilities making it virtually impossible to have a surplus budget. Furthermore, it is not advised to have a surplus budget since it implies that the government is amassing wealth instead of spending it on the well being of the people.
A deficit budget is a condition where the projected expenditure of the government throughout the year is higher than its anticipated revenue.
Government’s projected expenditure ˃ Governments predictable revenue.
Governments anticipated revenue ˂ Government’s expected expenditure
This type of budgetary policy is generally adopted in times of a depression in the country as it aims to reduce aggregate demand. The government earns surplus expenditure which augments the level of employment. This results in a boost of demand, thereby leading to restoration of the economy.
There are several other kinds of government budgets including union budget which is prepared by the central government for the country. Likewise, certain budgets are specifically allocated for certain projects known as plan budgets.