The economists and financial experts know exactly what they’re talking about when they start throwing around their financial jargon ( yeah the big words most of us really can’t wrap our heads around), but some of us- maybe many of us, really don’t.
Bear in mind though that we MUST understand what a Budget Deficit means because whether we choose to believe it or not, everything said in today’s budget presentation by the Finance Minister, affects each and every one of us.
Finance Minister Colm Imbert is meant to deliver to the nation, government’s plans to deal with the gap between what Government earns and what it spends. That gap is said to be in the vicinity of $10 billion for the current fiscal year, ending on September 30. That gap is referred to as a Deficit. Let’s take a look at what it means…
What is a ‘Budget Deficit’
A budget deficit is an indicator of financial health in which expenditures (money to be spent) exceed revenue (money earned). The term budget deficit is most commonly used to refer to government spending rather than business or individual spending, but can be applied to all of these entities.
BREAKING DOWN ‘Budget Deficit’
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 used as desired. In situations in which the inflows equal the outflows, the budget is said to be balanced.
Techniques to Reverse a Budget Deficit
Countries can counter budget deficits by promoting economic growth, reducing government spending and increasing taxes. By reducing burdensome regulations and simplifying tax systems, a country can improve business confidence, thereby prompting improved economic conditions, while increasing treasury inflows from taxes.
Reducing government expenditures, including on social programs and defense, and reforming entitlement programs, such as state pensions, can result in less borrowing.
If desired, a nation can print additional currency to cover payments on debts owed. This is done through the issuance of securities including Treasury bills and bonds. While this provides a mechanism to make payments, it does carry the risk of devaluing the nation’s currency.