Budget Surplus

Budget Surplus Definition

Budget surplus refers to the situation when the government’s earning through tax revenues is more than its spending in the current quarter or year. Government surplus is a positive sign in an economy and shows the strength of the government’s earning power. Most surpluses happen during the boom period when the government can charge higher taxes and it can cut down on its expense.

The government has several ways of earning and the most important way is the taxes. The government’s primary source of revenue taxes. If the taxes earned are more than what the government has spent in a fiscal year, then it is termed as a budget surplus. It can be used to pay off debts that the government has taken from the public, or from other nations.

How It is Used?

Budget Surplus

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Effects of Budget Surplus

Difference Between Budget Surplus and Budget Deficit

  • The budget surplus is the scenario when government earning is more than the spending whereas, in the budget deficit, government spending is more than its Income. It may happen when the government starts to collect fewer taxes or starts spending more. In both, the scenario money is flown in the economy and purchasing power increases. It helps in making the economy strong and growth can be noticed.
  • If the budget surplus happens during the booming period, then it can be tackled by monetary policy. So if the government starts taking more taxes and the economy slows down, then that can be tackled by expansionary monetary policy.
  • If the economy is in the depression phase, then it becomes difficult to recover if the government starts to plan a budget surplus, because the economy itself is in depression and on top of that government is decreasing expenditure and increasing taxes. At times surplus is good as the money saved can be used to pay off government debts and to create a surplus for future deficits.

Advantages

  • It is a very important plan when the economy is running in a boom. It will help to set aside funds for future deficits that the economy may face.
  • Money saved from budget surplus can be used to fund the military. Military expenditure is very important for the country but it doesn’t add to the well-being of the economy. Money spent on Guns and ships can be used to fund education and healthcare. So if the military expenditure can be done from surplus money, then it is good for the economy.
  • When the government needs money to fund its expenditure, they either borrow the money from the public or take it from other wealthy nations. Borrowing money costs interest that needs to be paid. To prevent a country from paying huge sums as interest, a country always plans to repay loans as and when they have money to do so. So it is an important step that helps the government to pay off its debts.

Disadvantage

  • Such a policy, if taken during the recession, will have an even deteriorating effect. Recession times are those when there is less money in the hands of people and if then the government decides to increase taxes and limit its expenditure to recover the economy, then it will have an adverse effect on the economy in total.
  • It decreases the demand for bonds. As the government stops borrowing, so the interest rate on a bond falls and the yield falls. So it is a loss for households as they will be getting less interest.

Conclusion

The budget surplus is a very important plan taken by the government to get rid of debts from the public and other nations. If the surplus can be channelized well then it can be used in favour of increasing military power and to safeguard the country form the sudden recession.

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