Calculations of the size of a government budget deficit/surplus

Government and the Macroeconomy – Fiscal Policy

What is a Budget Deficit or Surplus?

Think of the government’s finances like a bank account.

Revenue (taxes, fees, etc.) is the money that goes into the account, while Expenditure (spending on schools, roads, health, etc.) is the money that comes out.



Deficit = Money taken out > Money put in.

Surplus = Money put in > Money taken out.

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Key Formulae

The size of a budget deficit or surplus is calculated with the simple difference between total expenditure and total revenue:



Deficit (or Surplus) = Total Expenditure – Total Revenue



In LaTeX:


Inline: \$Budget\ Deficit = Total\ Expenditure - Total\ Revenue\$

Block: \$Budget\ Deficit = T{expenditure} - T{revenue}\$

Step‑by‑Step Calculation

  1. Gather the total revenue figures for the fiscal year (taxes, duties, fees, etc.).

  2. Gather the total expenditure figures (public services, infrastructure, salaries, debt interest, etc.).

  3. Subtract revenue from expenditure:

    • If the result is positive, the government has a deficit.

    • If the result is negative, the government has a surplus.

  4. Express the result in monetary terms (e.g., £2.5 billion deficit).

Example Calculation

ItemAmount (£ million)
Total Revenue15,000
Total Expenditure17,500
Deficit2,500

Exam Tip: When asked to calculate a deficit or surplus, always start by writing down the formula:

\$Budget\ Deficit = Total\ Expenditure - Total\ Revenue\$.

Then plug in the numbers carefully.

📌 Double‑check that you have used the correct figures for total revenue and total expenditure.

📌 If the result is negative, remember to state it as a surplus.

Quick Analogy: Imagine you have a piggy bank. If you put in £10 and spend £12, you’re £2 short – that’s a deficit. If you put in £12 and spend £10, you have £2 left – that’s a surplus. The government’s budget works the same way, just on a much larger scale. 🐷💰