Balanced Budget: A Comprehensive Overview
A balanced budget is a financial plan or budgeting process where total expected revenues are equal to total planned spending. This concept is frequently applied to public sector (government) budgeting. A budget can also be considered balanced in hindsight after a full year’s worth of revenues and expenses have been incurred and recorded.
Key Facts
- Personal Budget:
- Income: The amount of money earned from various sources, such as salary, investments, or side businesses.
- Expenses: The money spent on various categories, including housing, transportation, groceries, utilities, entertainment, and debt payments.
- Savings: The portion of income that is set aside for future goals or emergencies.
- Government Budget:
- Revenues: The total expected income for the government, including taxes, fees, and other sources of revenue.
- Expenses: The planned spending by the government, which includes various categories such as healthcare, education, defense, infrastructure, social welfare programs, and debt servicing.
- Surplus/Deficit: A budget surplus occurs when revenues exceed expenses, while a budget deficit occurs when expenses exceed revenues.
Understanding a Balanced Budget
When revenues exceed expenses, there is a budget surplus; when expenses exceed revenues, there is a budget deficit. While neither of these is a technically balanced budget, deficits tend to elicit more concern.
Advantages and Disadvantages of a Balanced Budget
Proponents of a balanced budget argue that excessive budget deficits saddle future generations with untenable debt. Just as any household or business must balance its spending against available income over time or risk bankruptcy, a government should strive to maintain some balance between tax revenues and expenditures.
On the other hand, running consistent budget surpluses tends to not be politically popular. While it may be beneficial for governments to sock away surpluses for so-called “rainy day funds” in case of a downturn in tax revenue, the government is generally not expected to operate as a for-profit business. The existence of surplus government funds tends to lead to demands for either lower taxes or, more often, increased spending since money accumulating in public accounts makes an attractive target for special interest spending. Running a generally balanced budget may help governments to avoid the perils of either deficits or surpluses.
Conclusion
The concept of a balanced budget is a complex one with both advantages and disadvantages. Governments must carefully consider the economic and political implications of their budgeting decisions to ensure the long-term stability and prosperity of their economies.
Sources
- Quizlet: https://quizlet.com/343591651/venture-flash-cards/
- Investopedia: https://www.investopedia.com/terms/b/balanced-budget.asp
- Quizizz: https://quizizz.com/admin/quiz/5b6d87a89929860019e64dcb/venture-lesson-1-building-a-balnced-budget
FAQs
What is a balanced budget?
- A balanced budget is a financial plan or budgeting process where total expected revenues are equal to total planned spending.
What are the main components of a balanced budget?
- The main components of a balanced budget include income, expenses, and savings.
What is the difference between a budget surplus and a budget deficit?
- A budget surplus occurs when revenues exceed expenses, while a budget deficit occurs when expenses exceed revenues.
What are some examples of revenues included in a balanced budget?
- Examples of revenues included in a balanced budget may include taxes, fees, and other sources of income for the government.
What are some examples of expenses included in a balanced budget?
- Examples of expenses included in a balanced budget may include healthcare, education, defense, infrastructure, social welfare programs, and debt servicing.
What is the importance of a balanced budget?
- A balanced budget is important for ensuring the long-term stability and prosperity of an economy. It helps to avoid excessive debt and maintain fiscal discipline.
What are some challenges in achieving a balanced budget?
- Some challenges in achieving a balanced budget may include economic downturns, political pressures, and the need to address unexpected expenses.
What are some strategies for achieving a balanced budget?
- Some strategies for achieving a balanced budget may include increasing revenues, reducing expenses, and implementing fiscal policies that promote economic growth.