A Deficit Budget


A deficit budget occurs when government expenditure (money going out) is greater than government revenue (money coming in).


This means the government spends more than it collects.


In our graph, expenditure is higher than revenue, so there is a deficit of (€15bn) from €89bn - €104bn.


Government Revenue and Expenditure (In Billions)


100 120


20 40 60 80


0 Government Revenue Government Expenditure 89 104


What Might the Minister for Finance Need to Do With a Budget Deficit?


ґ Increase Borrowing – Borrow to cover the shortfall of revenue and pay for the expenditure, which will need to be repaid with interest and increase our national debt.


ґ Increase Taxes – Raise taxes such as PAYE or VAT in order to increase future government revenue to cover the extra planned expenditure.


ґ Reduce Expenditure – Decide to cut funding in certain areas to help reduce planned expenditure and the deficit, reducing the quality of some public services.


A Balanced Budget


A balanced budget occurs when planned government revenue equals planned government expenditure.


In our graph, revenue and expenditure are equal, so there is neither a surplus nor a deficit. The Budget is balanced.


Government Revenue and Expenditure (In Billions)


100


20 40 60 80


0 Government Revenue Government Expenditure 90 90


What Could A Balanced Budget Mean for the Minister for Finance?


ґ Maintain Current Services– Continue funding services at existing levels. ґ Avoid Additional Borrowing– No need to increase the national debt.


346 2


STRAND 3


CHAPTER 30: Government revenue and government expenditure


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