What are the three types of government budgets? (2024)
An annual financial statement that describes the estimated government receipts and expenditures for the upcoming fiscal year is a government budget. Balanced, surplus, and deficit budgets are the three types of budgets, depending on how realistic these estimates are. The following is a brief description of the three different budget types:
BALANCED BUDGET
When projected government spending for a given fiscal year equals anticipated government revenue, the budget is considered balanced. Based on the idea of "living within means," this kind of budget is supported by many classical economists. They held the opinion that government spending shouldn't come out of its earnings.
Even though it's the best way to keep fiscal restraint and attain a balanced economy, a balanced budget doesn't guarantee financial stability during recessions or deflation. In theory, it is simple to strike a balance between projected expenses and income, but in actual practice, this is challenging to do.
Ensures economic stability, if implemented successfully.
Ensures that the government refrains from imprudent expenditures.
Demerits of a Balanced Budget
Unviable at times of recession and does not offer any solution to problems such as unemployment.
Inapplicable in less developed countries as it limits the scope of economic growth.
Restricts the government from spending on public welfare.
SURPLUS BUDGET
A surplus budget would be one if the expected government revenues exceed the estimated government expenditure in a particular financial year. This means that the government’s earnings from taxes levied are greater than the amount the government spends on public welfare. This type of budget denotes the financial affluence of a country. Surplus budget can be implemented at times of inflation to reduce aggregate demand.
If the estimated government expenditure exceeds the expected government revenue in a particular financial year, such a government budget is said to be a deficit budget. This type of budget is best suited for developing economies, such as India. Especially helpful at times of recession, a deficit budget helps generate additional demand and boost the rate of economic growth. Here, the government incurs the excessive expenditure to improve the employment rate. This results in an increase in demand for goods and services which helps in reviving the economy. The government covers this amount through public borrowings (by issuing government bonds) or by withdrawing from its accumulated reserve surplus.
Merits of a Deficit Budget
Helps in addressing public concerns such as unemployment at times of economic recession.
Enables the government to spend on public welfare.
Demerits of a Deficit Budget
Can encourage imprudent expenditures by the government.
Increases burden on the government by accumulating debts.
The U.S. Treasury divides all federal spending into three groups: mandatory spending
mandatory spending
Also known as entitlement spending, in US fiscal policy, mandatory spending is government spending on certain programs that are required by law. Congress established mandatory programs under authorization laws. Congress legislates spending for mandatory programs outside of the annual appropriations bill process.
https://en.wikipedia.org › wiki › Mandatory_spending
In American public finance, discretionary spending is government spending implemented through an appropriations bill. This spending is an optional part of fiscal policy, in contrast to social programs for which funding is mandatory and determined by the number of eligible recipients.
https://en.wikipedia.org › wiki › Discretionary_spending
and interest on debt. Together, mandatory and discretionary spending account for more than ninety percent of all federal spending, and pay for all of the government services and programs on which we rely.
The three types of annual Government budgets based on estimates are Surplus Budget, Balanced Budget, and Deficit Budget. When the revenues are equal to or greater than the expenses, then it is called a balanced budget. You can read about the Highlights of the Union Budget 2021-22 for UPSC in the given link.
In 2023, federal spending is projected to total $6.1 trillion — almost one-fourth of the economy and $19,100 for each person living in the United States. That spending can be divided into three categories: mandatory, discretionary, and interest.
Government spending or government expenditure can be divided into three primary groups, government consumption, transfer payments, and interest payments. Government consumption refers to government purchases of goods and services.
One popular strategy is the 50/30/20 rule is a budgeting method that breaks down your after-tax income into three spending categories: needs, wants and savings. This is a good jumping-off point if you're new to budgeting or less likely to track every bill or purchase.
The 50/20/30 Budget. In the 50/20/30 budget, 50% of your net income should go to your needs, 20% should go to savings, and 30% should go to your wants. ...
Pay Yourself First. In the “Pay Yourself First” method, the first “bill” you pay every month is to your savings account. ...
Roughly 14 percent of the budget provides assistance to families and individuals in need. This includes refundable tax credits, Supplemental Security Income, Supplemental Nutritional Assistance Program (SNAP), low-income housing and school meals.
Hence, Spending plans are divided into three categories with roughly 50 % of the after tax budget going to the category of needs and 30% of the after tax budget going to wants, with the rest going to 20 % .
The budget covers the agencies of all three branches of Government—Executive, Legislative, and Judicial—and provides information on Government-sponsored enterprises.
Planning, controlling, and evaluating performance are the three primary goals of budgeting. Planning: Budgeting is a planning tool that enables businesses to establish quantifiable financial targets for the future. They are able to prioritize tasks and allocate resources more wisely as a result.
Does the idea of creating a budget seem overwhelming? It shouldn't. You can start having more control over your finances today by using the three P's: paycheck, prioritize and plan.
The rule is that a third of your take-home income should be used towards your home, a third for living expenses, and the last third should be for savings and investments.
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