Balanced Budget

A balanced budget is a budget where the planned finance structure has revenues equal to its expenditures; the term is often related to the government's budget plans. Hence, it is a budget where the government's receipts equal its estimated expenditures.

Structuring a budget in an equitable form enhances a government's accountability fundamentally. Moreover, following a budget that aims to keep spending and revenue on the same level inculcates financial discipline. It can be done by limiting deficit spending. Governments with strict standards for their budgets are more likely to reduce spending than those without.

• A balanced budget occurs when anticipated revenues are equal to anticipated expenses. The term is typically used about government budgets, where cost levels must be strictly regulated because revenues are generally stable and financing reserves are minimal.
• A balanced budget amendment is a constitutional regulation primarily introduced to restrict the government from spending more than its income. 
• An unbalanced budget is one where the total anticipated revenues are not equal to the estimated expenditures. Therefore, it is represented as either - total revenues > total expenditures or total revenues < total expenditures.
• A balanced budget has a surplus as opposed to a deficit. A budget where expected or actual total revenues and expenditures are equal in governmental accounting terms. In contrast, an imbalanced budget is one in which income is lower than expenses or vice versa.

A balanced budget occurs when anticipated revenues are equal to anticipated expenditures. The term is typically used about government budgets, where cost levels must be strictly regulated because revenues are generally stable and financing reserves are minimal.

When revenues are higher than expenses, there is a budget surplus; when the opposite is true, there is a budget deficit. Once all the revenues and expenses for the entire year have been recorded, a budget should be deemed balanced. It can also be expressed as a balanced budget formula, which is:

Total Expected Revenue = Total Expected Spending

Most governments are expected to plan and pass a budget that is not only balanced but also sustainable long into the future. A budget may meet the statutory definition of a 'balanced budget', but it may not be financially sustainable. For instance, a budget balanced by these criteria may not necessarily be structurally balanced if it uses non-recurring resources, like proceeds from the sale of assets or reserves, to pay for its ongoing expenditures.

Additionally, a budget that ensures financial stability for several years into the future is structurally balanced. Therefore, a government must recognize the differences between creating a truly structurally balanced forecast of revenues and expenditures and meeting the legislative criteria.

Governments' balanced budgets are those in which their expenses and revenues are equal; for example, in fiscal year (FY) 2022, the federal government spent $1.38 trillion more than it received, creating a deficit. When the federal government's spending exceeds its receipts, a deficit occurs, and hence the budget year saw a deficit budget. On the other hand, if the revenue was $2 trillion, and the expenditure was also $2 trillion for the year, the budget for the year would have been balanced.

A balanced budget amendment is a constitutional regulation typically laid down to restrict the government from spending more than its income. It necessitates maintaining an equilibrium between the government's anticipated revenues and expenditures. The action is undertaken with the expectation that it will reduce deficit spending and forbid elected officials from making rash short-term spending decisions while in office. Research indicates that they lead to greater fiscal discipline among governments. In addition, strict policies deter deficit financing and are considered a good policy move in cases of economic recession.

Let us see some advantages and disadvantages of a balanced budget in the following section -

Advantages

• It is one of the best strategies for achieving economic equilibrium and upholding financial discipline. 
• It does not promote extravagant spending and helps being disciplined with expenditures.
• It has the potential to ensure financial stability.

Disadvantages

• It is not an appropriate technique for developing or emerging nations. The government in such nations should spend more money than it receives as revenue to increase overall economic demand. Hence having a budget that aims to equate revenues and expenditures may not help.
• Limits government expenditures for public welfare.
• It may not secure full employment for the country's people and can hinder economic growth.
• They are ineffective in times of emergency and war. For example, it may not be able to address the issue of unemployment during a depression.

Let us look at the comparison between the budgets in the following section -

This article has been a guide to what is a Balanced Budget. We explain its amendment, example, advantages, disadvantages, and comparison with the unbalanced budget. You may also find some useful articles here -

• Deficit Spending
• National Debt
• Subsidy