A government budget is an annual financial statement that outlines the estimated expenditure of the government and expected receipts or revenues for the forthcoming financial year.

The 3 types of government budgets are balanced budget, surplus budget and deficit budget. 

Also Read: Rajasthan govt urges Centre compensate states revenue deficit due to low GST collections

Here are detailed explanations of the 3 types of budgets:

1. Balanced Budget: The government budget is said to be balanced if government expenditure is equal to government receipts in the given financial year. This budget is based on the principle of “living within means.”

The merits of such a budget are that if implemented successfully, it ensures economic stability and makes sure that the government does not make unnecessary and unwise expenditure.

The disadvantages of such a budget are that it’s unviable during recession and does not solve problems like unemployment. It stops the government from incurring expenditure for public welfare and is inapplicable in developing countries.

Also Read: EDMC panel rejects new taxes proposed in budget

2. Deficit Budget: When the estimated expenditures of the government are more than its estimated receipts, the budget is said to be in deficit. It is best suited for semi-developed or developing countries like India. It is of great help in the times of recession as it helps to generate demand and boost economic growth.

The advantages of such a budget are that it helps in addressing public concerns such as unemployment and poverty at times of economic recession and enables the government to incur expenditure for the welfare of the public.

The demerits of having a deficit budget are it can encourage imprudent expenditures by the government and raise the burden on the government by accumulating debts.

Also Read: Budget session of Mizoram Assembly from Feb 23

3. Surplus Budget: When the estimated receipts of the government are lesser than estimated government expenditure for the given year, the budget is said to be in surplus.

A surplus budget indicates the financial affluence of a country. It can be implemented at times of inflation to reduce aggregate demand.

The advantages of such a budget are that it allows a government to repay some of their existing national debt and it might lead to a fall in bond yields which makes future government borrowing less expensive.

The potential demerits of such a budget are that if taxes are greater than government spending, it is a net leakage from the circular flow of income which can have a deflationary effect on real GDP. Fiscal austerity to achieve a budget surplus can have negative effects on the quality of public services and might increase inequality.