Deficit budget

1. Deficit Budget

2. • A budget deficit occurs when government expenses exceed
revenue.
• Many people use it as an indicator of the financial health of a
country.
• It indicates that the government is spending more money than
it is earning through various sources, such as taxes, fees, and
other revenue streams.
• This shortfall in funds leads to the accumulation of national
debt.

3. • When a budget deficit is identified, current expenses exceed the
income received through standard operations.
• Certain unanticipated events and policies may cause budget deficits.
• To correct its nation's budget deficit, government may cut back on
certain expenditures or increase revenue-generating activities
• In the early 20th century, few industrialized countries had large fiscal
deficits; however, during the First World War,
• deficits grew as governments borrowed heavily and depleted financial
reserves to finance the war and their growth.
• These wartime and growth deficits continued until the 1960s and
1970s, when world economic growth rates dropped.

4. Causes
Both levels of taxation and spending affect a government's
budget deficit. Common scenarios that create deficits by
reducing revenue and increasing spending include:
• A tax structure that undertaxes high-wage earners but
overtaxes low-wage earners.
• Increased spending on programs like Social Security,
Medicare, or military spending.
• Increased government subsidies to targeted industries.
• Tax cuts that decrease revenue but provide corporations with
funds to increase employment.

5. • Economic downturns can also contribute to budget deficits.
• During recessions or periods of slow economic growth, tax
revenues tend to decrease as individuals and businesses earn
less income.
• At the same time, government expenditures may rise due to
increased demand for social welfare programs or the need for
economic stimulus packages. These factors can further
increase budget deficits.

6. Types of Budget Deficit
• Primary Deficit: The primary deficit refers to the difference between
the government’s total expenditure and its total revenue, excluding
interest payments on existing debt.
• Revenue Deficit: A revenue deficit occurs when the government’s
total revenue falls short of its total revenue expenditure, taking into
account both revenue receipts and revenue expenditures.
• Fiscal Deficit: Fiscal defict represents the overall shortfall between
the government’s total expenditure and its total revenue, involving
both revenue and capital transactions.

7. • Current Account Deficit: Current account deficit occurs when a
country’s total imports exceed its total exports, indicating an
imbalance in international trade and requiring foreign borrowing to
bridge the gap.
• Trade Deficit: A trade deficit arises when a country’s total imports
exceed its total exports in terms of goods and services, leading to an
outflow of domestic currency to foreign economies.
• Budget Balance: Budget balance refers to a situation where the
government’s total revenue matches its total expenditure, resulting in
neither a deficit nor a surplus.

8. Measures
• Fiscal Policies: Governments can implement fiscal policies aimed at
reducing spending and increasing revenue.
• This may involve reducing non-essential expenditures, streamlining
government programs, and implementing measures to control
budgetary imbalances.
• Tax Reforms: Governments may introduce tax reforms to increase
revenues and narrow the budget deficit.
• This can include adjusting tax rates and broadening the tax base.

9. • Monetary Policies: Central banks can implement monetary
policies to stabilize the economy and manage the impact of
budget deficits. These policies may involve adjusting interest
rates, managing inflation, and implementing measures to
ensure liquidity and financial stability.

10. • Spending Cuts: Governments can implement targeted spending cuts in areas
that have less impact on economic growth or where inefficiencies exist.
• This can help reduce the budget deficit without severely affecting critical
sectors or social programs.
Surplus Budget
• The opposite of a budget deficit is a budget surplus.
• When a surplus occurs, revenue exceeds current expenses, resulting
in excess funds that can be further allocated. When the inflows equal the
outflows, the budget is considered balanced.

11. Budget Estimates 2025-26
Comments..
• The Finance Minister presented the Union Budget 2025-26
with the theme "Sabka Vikas" stimulating balanced growth
of all regions.