Types of union budget
Government budgets are of three types:
- Balanced Budget: when government revenue and expenditure are equal.
- Surplus Budget: when anticipated revenues exceed expenditure.
- Deficit Budget: when anticipated expenditure is greater than revenues.
Balance budget
- A government budget is said to be balanced when it is estimated that revenues and anticipated expenditure are equal. i.e. government receipts and government expenditure.
- It implies that the government raises funds in the means of taxes and other means a balanced budget was considered an effective check on extravagant expenditure of the government.
- The government must exercise financial discipline and should keep its expenditure within the available income.
Surplus budget
- The budget is surplus when estimated government receipts are more than the estimated government expenditure. When the government spends less than the receipts the budget becomes surplus.
- Estimated government receipts > anticipated government expenditure .
- A surplus budget is used either to reduce government public debt or increase its savings .
- A surplus budget may prove useful during the period of inflation in periods of inflation , although there is greater employment there is also a tendency for prices to rise rapidly.
- The surplus budget should not be used in a situation other than the inflationary gap as it may lead to unemployment and low levels of output as an economy.
Deficit budget
- The budget is called deficit budget when estimate government receipts are less than the government expenditure.
- In modern economies, most of the budget are of this nature .
- estimate government receipts < anticipated government expenditure.
- A deficit budget increases the liability of the government or decreases its reserves.
- A deficit budget may prove useful during the period of depression , economics activities are at a low level . it results in unemployment , business loss and even bankruptcy and inflation etc. the government can borrow money and increase the expenditure on public works through deficit financing .
- This will increase employment and total effective demand for the goods and also the services which would then encourage investment . thus, a deficit budget is useful for removing depression and unemployment.
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