Union Budget 2021: What Are The Three Types Of Govt Budgets? Here’s All About It

Ahead of the Union Budget 2021 announcement, here is all about the three different types of government budgets - their merits, demerits and optimum conditions.

The Government budget is an annual financial statement that provides details of the estimated expenditure and expected revenues for the government in the forthcoming financial year. 

The government budgets are of three types: balanced budget, surplus budget, and deficit budget. Here is what they involve:

Balanced Budget

When the estimated government expenditure is equal to expected government revenue in a particular financial year, it is called a balanced budget. Broadly this kind of budget can be understood as “living within one’s means” as conservative economists believe that the government’s expenditure should not exceed the returns it receives.

This seems to work in an ideal scenario to have a balanced economy however it is not the practical option for times of economic depression, deflation, or other times of crisis.

In its positives, this type of budget ensures economic stability when implemented successfully as it ensures that the government refrains from extravagant expenditures.

However, adopting it can restrict the government from spending on public welfare especially as developing and underdeveloped countries that do not enjoy a certain kind of revenue will struggle to adopt this method of financial spending. Like previously stated, it is not a viable option for times of recession or other crises where the government is encouraged to spend for strengthening its states and different industries.

Surplus Budget

A government budget is a surplus one in case the expected government revenues exceed the estimated government expenditure in a financial year. In simple terms, the government is earning more than it spends. Such a budget can display the financial affluence of a country. It can be implemented at times of inflation to reduce aggregate demand.

This kind of budget is appropriate in times of economic stability as an attempt to attain a budget surplus in a recession will involve higher taxes and lower spending - policies that can make the recession worse.

It is a rare occurrence because when a conducive scenario arrives, governments are likely to reduce tax rates thereby reducing their revenue and perhaps go on to spend more on public schemes.

Deficit Budget

A deficit budget is the kind of government budget where the estimated government expenditure exceeds the expected government revenue in a particular financial year.

It is the type of budget seen in most developing economies including India. It is considered to be helpful at times of recession as a deficit budget helps generate additional demand and boost the rate of economic growth. The government also incurs excessive expenditure to improve the employment rate.

In case of good priorities and implementation, it can boost demand for goods and services to revive the economy.

The Deficit Budget also enables a government to spend more on public welfare. However, if undertaken irresponsibly, it can be caused by the government indulging in unnecessary expenditure – leading to an unnecessary burden on reserve with piling debts.