(A) Deficit budget:
- A budget in which the government’s anticipated total expenditure is more than the anticipated total income is called deficit budget.
- Thus, Deficit budget = Anticipated total expenditure > Anticipated total income.
- In present times, government budgets are mostly deficit budgets.
Developing nations:
A developing economy usually spends a lot on development activities like ‘ education, social welfare, creation of public utilities, etc. However, since the economy is yet developing, the income of such nations from taxes and other sources is lower. Hence, developing nations have a deficit budget.
Developed nations:
Developed nations spend quite a lot on defence, research, etc. and hence even developed countries can have a deficit budget.
(B) Merits of a deficit budget:
- Deficit budget promotes development and welfare activities.
- In times of slow economic activity, the government, spends more in the economy for investment and creating employment. This boosts the economy during depression and hence can lead to economic growth.
- Since the expenditures are high and incomes are low and taxes are a major source of income for the government, the government put lesser tax burden on people in proportion to the economic activity going on in the state.
(C) Demerits of a deficit budget:
- In order to meet the deficit governments borrow money. This increases debts of the government.
- A deficit in the budget means that the government does not have control on expenditures.
- From a high budget deficit, one can also conclude that the tax revenues collected from public is getting wasted in unnecessary expenditures.
