What is a Balanced Budget?

Published by Thomas Herold in Economics, Laws & Regulations

'Balanced Budget' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

The phrase balanced budget refers to the scenario within the world of financial planning or a government budgeting in which the aggregate revenues prove to be greater than or at least equal to the total expenses. Government budgets are called balanced after the fact, once a complete year’s expenses and revenues have been tallied up and reconciled. A firm’s operating budget over a coming year might also be referred to as a balanced one assuming that the estimate and forecasts show it will be in practice.

Balanced budget is most often utilized to refer to the government’s official budgets. As an example, a government might issue press releases which claim they will have a budget which is balanced in the pending fiscal year. Politicians on the campaign trail might similarly argue they will balance the federal budget if they are elected to office. One should realize that the term balanced budget may either refer to a scenario in which the expenses and revenues balance out or in which the final revenues surpass the ending expenses. This can never be the case if the final expenses are greater than the actual revenues.

The phrase balanced surplus is frequently employed alongside a balanced budget. With a budget surplus, the revenues are higher than the aggregate expenses. The difference between revenues minus expenses equals the amount of the surplus. Within the world of business, such surpluses might be reinvested into the corporation itself. They might plow this money into useful R&D research and development, as one example. They could also chose to provide shareholders of the company with extra dividends or take care of their hard working employees by issuing bonus checks.

Where the government is concerned, such a budget surplus occasionally happens as a calendar year’s worth of tax revenues are higher than the actual expenditures of the government concerned. With the United States, this concept of a surplus is extremely rare. In all the years since 1970, the country has only managed to post a budget surplus on four occasions. These were within the Clinton presidency years of 1998-2001 consecutively.

Budget deficits are the opposite of budget surpluses and stand in marked contrast to balanced budgets. With a deficit, it means that the actual expenses are higher than the associated offsetting revenues. Deficits such as this practically always mean that higher government debts will be accrued. As an example, with the United States debt totaling in at more than $20 trillion as of 2017, this represents the total sum of numerous budget deficits accrued over at least five decades.

Those who are in favor of such balanced budgets claim that the deficits the country has run up over past decades are strapping an un-payable mountain of debt to the future American generations who have no say in the matter. One day eventually, there will have to be taxes levied or the money supply inflated away in order service the debt, not just to pay it. This would devalue the currency severely and finally ruin the savings and investments of countless millions of American retirees and workers.

There are still other economists who believe that these budget deficits do serve a useful end-result. In the government’s quiver to address recessions, deficit spending is a key arrow. In times of contraction in the national economy, demand plunges and causes the GDP gross domestic product to fall. With unemployment declining in these times of recession, actual revenue from the taxes which the government levies and collects drops.

This means that they can not balance the budget unless they slash their spending in various areas in order to equal out with the reduced tax base and receipts. Such a move cuts demand further and pressures GDP even more. It could plunge the entire economy into a vicious negative spiral if pursued rigorously, as has happened in Greece with its creditors and their bailout requirements to slash spending year in and year out. Deficit spending then will help to prop up and eventually stimulate flagging demand in the economy by juicing it up with capital that is sorely needed at times like these.

Free Download (No Signup Required) - The 100 Most Important Financial Terms You Should Know!
This practical financial dictionary helps you understand and comprehend the 100 most important financial terms.

The term 'Balanced Budget' is included in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.