BUDGET DEFICIT

A budget deficit is an indicator of financial health in which expenditures exceed revenue. In cases in which a budget deficit is identified, current expenses exceed the amount of income being received through standard operations. In order to correct a budget deficit, a nation may need to cut back on certain expenditures or increase revenue-generating activities, or employ a combination of the two.

The counter to a budget deficit is called a budget surplus. When a surplus occurs, revenue exceeds current expenditures and results in an excess of funds that can be allocated as desired. In situations in which the inflows equal the outflows, the budget is said to be balanced.

Budget deficits may decrease in times of economic prosperity as increased tax revenue, lower unemployment rates and increased economic growth reduce the need for government-funded programmes.