Definitions of government budget

Government Budget

What is a Government Budget?

Think of it like a family’s monthly plan:

Revenue (money coming in) and Expenditure (money going out).

The government writes down how much it expects to collect from taxes, fees, and other sources, and how it plans to spend on schools, roads, defence, and more.

Key Components

  • Revenue – taxes, duties, fees, and other income.

  • Expenditure – public services, infrastructure, salaries, and debt service.

  • Deficit / Surplus – the difference between revenue and expenditure.

  • Debt – money borrowed to cover deficits over time.

Types of Budget

  1. Balanced Budget – revenue equals expenditure (no deficit or surplus).

  2. Deficit Budget – expenditure > revenue; the government borrows to cover the gap.

  3. Surplus Budget – revenue > expenditure; the government can save or pay down debt.

Important Fiscal Terms

TermDefinition
Primary Deficit\$D_p = \text{Expenditure} - \text{Revenue} - \text{Interest on Debt}\$ – the part of the deficit that is not interest.
Fiscal MultiplierThe ratio of the change in GDP to the change in fiscal spending. It shows how much the economy grows for each pound spent.
Debt-to-GDP Ratio\$ \frac{\text{Total Debt}}{\text{GDP}} \times 100\%\$ – a measure of how much debt the country has relative to its economy.

Exam Tip Box

🔍 Remember:

• A deficit means the government spends more than it earns.

• A surplus means the opposite.

• The primary deficit tells you how much borrowing is needed after paying interest.

• Use the debt‑to‑GDP ratio to discuss sustainability of debt.

When answering, start with the definition, then give an example (e.g., “If a country earns £500bn in tax revenue but spends £550bn, it has a £50bn deficit”), and finish with a brief implication (e.g., “This may lead to higher borrowing and interest payments”).