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17: Government Budgets and Fiscal Policy

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• 17.1: Introduction to Government Budgets and Fiscal Policy
• 17.2: Government Spending
• 17.3: Taxation
• 17.4: Federal Deficits and the National Debt
• 17.5: Using Fiscal Policy to Fight Recession, Unemployment, and Inflation
• 17.6: Automatic Stabilizers
• 17.7: Practical Problems with Discretionary Fiscal Policy
• 17.8: The Question of a Balanced Budget
• 17.9: Key Terms
• 17.10: Key Concepts and Summary
• 17.11: Self-Check Questions
• 17.12: Review Questions
• 17.13: Critical Thinking Questions
• 17.14: Problems

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Federal Budget: The Fiscal Ship Game

Students will be able to:

• Define debt, deficit, and surplus.
• Analyze the economic and political impact of different fiscal policy strategies.
• Apply their selected fiscal policy goals.
• Understand the implications of their policy choices on the national debt.

National Standards in Economics

State Standards

Common Core State Standards

In this economics lesson, students will evaluate fiscal policy objectives to learn the challenges of sustainable national budget formation.

VIDEO: THE FEDERAL BUDGET: WHERE THE MONEY COMES FROM AND WHERE IT GOES

VIDEO: THE FEDERAL BUDGET: WHAT LIES AHEAD

The Fiscal Ship Student Handout

The Fiscal Ship Lesson Powerpoint Slides

How to Play Fiscal Ship

FISCAL SHIP GAME

Where federal govt spends money

Political Typology Quiz

Where do your students think the federal government spends it’s money?  Poll your students using your favorite method (menti, poll everywhere, etc) Q. Which spending category was the largest part of the 2022 federal budget?  Answers: A: Defense Spending  B. Social Security  C. Heath and Medicare  D. Income Security  E. Foreign Aid  F. Education  G. Interest on the Debt.       Correct answer is C. Health and Medicare   Discuss students answers.

Hand out a copy of Where Federal Govt Spends Money    and have students fill out the percentages in the first column.  Display Powerpoint Slide #2.

Hand out a copy of guiding notes and questions (pgs. 1-2) from the The Fiscal Ship Student Handout to each student. Use the The Fiscal Ship Lesson Powerpoint Slides and videos to walk students through the background information necessary to understand challenges facing federal budget policy-makers given the size of recent budget deficits and the increasing size of the national debt. Review slides 1-34.

Group Activity

Hand out a copy of Select Your Governing Goals and Your Personal Governing Goals (pgs. 3-4) from the The Fiscal Ship Student Handout to each student. Direct students through the presentation slides 35-40.  Within this section, students will select three governing goals and engage in a pair-and-share discussion with a neighbor. Prompt students to discuss the questions provided on slide 40 and to record their answers to the corresponding questions on Your Personal Governing Goals.

Hand out a copy of Policy Options Evaluation (pgs. 6-7) from the Fiscal Ship Student Handou t  to each student. Students highlight policies in each of the 16 categories of policy options on the Fiscal Ship. These are the same policy options they will encounter during the Fiscal Ship game when they are balancing their own values with the fiscally sustainable goals of the government.

Individual Activity

Students will require access to a device which allows access to the Internet, preferably a tablet or laptop. Teachers should begin explaining the objectives of the game as stated on slides 44-45. On a projector screen, show the YouTube video How to Play the Fiscal Ship linked on slide 46. Students should be prompted to complete questions 6-8 on pg. 5 from the Fiscal Ship Student Handout before closing out of the Fiscal Ship Game application. Students will participate in a class discussion after the game experience as seen on slide 47. Provide students the link to play the Fiscal Ship Game . During the game, be sure students have chosen to select their own goals, and then to proceed selecting policies which will allow them to achieve their selected goals and to sustain the national debt levels, hopefully managing to achieve both objectives before submitting their fiscal budget plan.

Students should demonstrate new learning by completing a “5 Minute Write” in response to the prompt provided on slide 36 of the presentation. It states, “Now that you have played the Fiscal Ship game, how do you propose the federal government set the budget on a sustainable course for the next 25 years?” Collect the responses.

Prompt students to complete the  Political Typology Quiz  by the Pew Research Center. This quiz determines student’s political typology and better understand how their values guide personal policy preferences. The Pew Research Center survey elaborates on the political spectrum by comparing student responses to actual survey data, allowing students to see the complex nature of policy-making given the difficulties of consensus building across many different political  groups and important social and political issues. Students should select the answer choices which best align with their views. The survey results will include the percentage of U.S respondents who are aligned with their view points (political typology considers alternatives being the simple conservative or liberal labels).

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Government Budgeting: Meaning, Components, Types & Related Concepts

Government budgeting is a fundamental aspect of public administration and governance, serving as a critical tool for economic management, policy implementation, and social development. It reflects the government’s priorities, commitments, and plans for the nation’s future. This article of NEXT IAS aims to explain in detail the meaning of government budgeting, key components of a government budget and other related concepts.

What is Government Budgeting?

Government budgeting is the process by which governments plan, allocate, and monitor the spending of public funds. It involves estimating government revenues (from taxes, fees, and other sources) and deciding on the expenditures necessary to achieve the government’s policy objectives within a specified fiscal period, usually a year.

Government Budgeting in India

Government budgeting in India is a comprehensive process involving the preparation, enactment, and execution of budgets by the Center and/or the states. For the purpose of this article, we will focus on the budget of the central government, called as the Union Buget of India.

Union Budget of India

As per Article 112 of the Constitution of India, the Union Budget of a fiscal year refers to the annual financial statement of the Union Government for that particular fiscal year. It contains a detailed account of the estimated receipts and expenditures of the government for a particular fiscal year that runs from 1st April to 31st March.

The data contained in the Union Budget of India can be categorized into the following three categories:

• Budget Estimates of receipts and expenditures for the upcoming fiscal year (also known as the Budget Year)
• Revised Estimates of receipts and expenditures for the current fiscal year.
• Provisional Actuals of receipts and expenditures for the previous fiscal year.

For example, the Union Budget 2023-24 was presented towards the end of the fiscal year 2022-23 in February 2023. Thus, for the Union Budget 2023-24, the 2022-23 became the current fiscal year, 2021-22 became the previous fiscal year and 2023-24 became the upcoming fiscal year. Thus, the Union Budget 2023-24 contained these three categories of data:

• Budget Estimates of receipts and expenditures for the fiscal year 2023-24
• Revised Estimates of receipts and expenditures for the fiscal year 2022-23
• Provisional Actuals of receipts and expenditures for the fiscal year 2021-22

Key Facts about the Union Budget of India

• Prior to the budget year 2017-18, the Budget was presented in the last week of February as per the colonial practice.
• The Railway Budget was separated from the General Budget by the British in 1924 on the recommendations of the Acworth Committee.
• The nodal agency for the preparation of the Union Budget is the Budget Division of the Department of Economic Affairs (Ministry of Finance) .

Process of Government Budgeting in India

The process of government budgeting in India comprises four distinct phases:

• Budget Formulation : It involves preparation of estimates of expenditure and receipts for the ensuing financial year.
• Budget Enactment : It involves approval of the proposed Budget by the Legislature through the enactment of Finance Bill and Appropriation Bill
• Budget Execution : It involves enforcement of the provisions in the Finance Act and Appropriation Act by the government. Roughly, it comprises of collection of receipts and making disbursements for various services as approved by the legislature.
• Legislative Review : It refers to audits of government’s financial operations on behalf of the legislature

Procedure for Budget Enactment

The enactment of the Union Budget forms the most crucial part of the government budgeting process. The whole process of enactment of the Union Budget is described in chronological order as follows:

• President’s Recommendation: As per Rule 204 (1) of the Rules of Procedure and Conduct of Business in the Lok Sabha, the Budget is presented to the Parliament on such date as is fixed by the President. Thus, the recommendation of the President of India is taken for introduction and consideration of the budget in the Lok Sabha.
• In the Budget Speech, the Union Finance Minister summarizes the key points of the budget and explains the thinking behind the proposals.
• At the end of the Budget Speech, the budget is laid before the Rajya Sabha as well.
• During the general discussions, the House is at liberty to discuss the budget as a whole or any question of principle involved therein, but no motion can be moved nor can the budget be submitted to the vote of the House.
• Scrutiny by Departmental Committees : After the general discussion on the budget is over, the Houses are adjourned for some perio, during which the demands for grants are scrutinized thoroughly by the Departmental Standing Committees. The committees, then, submit their reports to the Parliament.
• Voting on Demands for Grants : In the light of the reports submitted by the departmental standing committees, the Lok Sabha debates and votes on the demands for grants. Once duly voted upon and passed by the Lok Sabha, a demand becomes a grant.
• The Rajya Sabha can discuss the budget but has no power to vote on the demands for grants. This is the exclusive privilege of the LS.
• Cut Motions are of 3 types:
• Policy Cut Motion: it states that “the amount of the Demand be reduced to `1”. It represents disapproval of the policy underlying the demand.
• Economy Cut Motion : It states that “the amount of the demand be reduced by a specified amount”. Thus, it represents the economy that can be affected in the proposed expenditure.
• Token Cut Motion : It states that “the amount of the demand be reduced by `100”. Its purpose is to vnetilate a specific grievance.
• After Presidential assent, the Appropriation Bill becomes the Appropriation Act and authorizes withdrawals from the Consolidated Fund of India to meet the government’s expenditure.
• The passing of the Finance Bill is mandatory to legalize the income side of the budget.
• With passing of the Finance Bills, the process of the enactment of the budget gets completed.

Components of Government Budget

There are, broadly, two main components of the Government Budget – Revenue Budget and Capital Budget

Revenue Budget

This component comprises the details of revenue receipts and expenditures for the upcoming fiscal year. Thus, this, in turn, has 2 sub-components:

Revenue Receipts

This includes the income the government expects to receive within the fiscal year that is not to be paid back by the government.Revenue Receipts are not reclaimed from the government, and hence they don’t impact the liabilities and assets of the government.

Revenue Receipts are of 2 types:

Tax Revenue

It consist of the proceeds of taxes and other duties levied by the Central Government.

Tax revenues comprise of proceeds coming from the following types of taxes:

• Direct Taxes – It includes taxes which are imposed directly on individuals (personal income tax) and firms (corporation tax).
• Indirect Taxes – It includes taxes like Excise Taxes (duties levied on goods produced within the country), Customs Duties (taxes imposed on goods imported into and exported out of India) and Service Tax.
• Other Direct Taxes – It includes taxes like Wealth Tax, Gift Tax etc.

Non-Tax Revenue

It comprises earnings from sources other than taxes, and mainly consists of:

• Interest receipts on account of loans by the Central Government
• Dividends and profits on investments made by the government
• Fees and other receipts for services rendered by the government.
• Revenue from Spectrum Auctions
• Loans and Grants-in-aids from foreign countries and international organisations

Revenue Expenditure

Revenue Expenditure is expenditure incurred for purposes other than the creation of physical or financial assets. Thus, these expenses do not yield any revenue in the future.

Some major components of the Revenue Expenditure include expenses incurred for the purpose of

• Day-to-day functioning of the government departments
• Salaries, pensions, subsidies, interest payments
• Offering various services to citizens.
• Interest payments on debt incurred by the government
• Grants given to State Governments and other parties (even though some of the grants may be meant for creation of assets).

Capital Budget

The Capital Budget is an account of the assets as well as liabilities of the Central Government. This shows the capital requirements (for creating long term durable infrastructure) of the government and the pattern of their financing.

The Capital Budget, in turn, has 2 sub-components:

Capital Receipts

They comprise the funds received by the government that are not part of the regular income sources. All those receipts of the government which create liability or reduce financial assets are termed as capital receipts.

Capital Receipts are of two types:

Debt Creating

These include fresh loans and other liabilities raised by the government.

Non-Debt Creating

These include amounts received by the government from the disposal of its assets and recovery of loans.

Capital Expenditure

It comprises expenses incurred by the government to create long-term assets and investments that give profits or dividends in the future.

Some of the major components of Capital Expenditure include:

• Expenditure on developing infrastructure like roads, schools, hospitals, etc.
• Investments in shares of the government companies and corporations.
• Loans and advances made by the Central government to States and Union Territories or foreign agencies.
• Repayments of loans and other liabilities (only repayment of the principle amount of the loan forms capital expenditure. Interest payments on loans is a part of the revenue expenditure.)

Types of Budget

The government budget (central budget or state budget) can be of three types – Balanced Budget , Surplus Budget, and Deficit Budget.

Balanced Budget

A balanced budget is the one wherein the expected or actual receipts are equal to proposed expenditures. This means that the income equals the total spending. A Balanced Budget increases the level of aggregate demand in the economy moderately. Hence, it is recommended in a situation when the economy is close to achieving full employment.

Surplus Budget

A surplus budget is the one wherein receipts exceed expenditures. In other words, more money is coming in than going out. A Surplus Budget reduces the aggregate demand. Hence, it is recommended in an economic situation when there is a large inflationary gap

Deficit Budget

A deficit budget is the one wherein expenditures exceed receipts. This means the government is spending more money than it is earning or receiving. A Deficit Budget increases the aggregate demand. Hence, it is recommended in an economic situation of depression.

Deficit and its Types

In the context of Government Budget, the gap between the receipts and expenditure is called Deficit.

There are various types of Deficit in the context of government budgeting:

Budget Deficit

Budget Deficit refers to the difference between all receipts and expenses in both revenue and capital account of the government.

Budget Deficit = Total Expenditure – Total Receipts Since it, usually, equals to zero (0), it does not have much significance.

Revenue Deficit

Revenue Deficit is the excess of government’s revenue expenditure over its revenue receipts.

Revenue Deficit = Revenue Expenditure – Revenue Receipts

A high revenue deficit, usually, results in borrowing by the government to finance recurring and non-asset creating expenditure. Since it may lead to unsustainable levels of debt, it is a warning to the government either to curtail its expenditure or increase its tax and non-tax receipts.

Effective Revenue Deficit (ERD)

Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. Thus, it indicates the actual revenue deficit after grants given for capital expenditure.

Effective Revenue Deficit = Revenue Deficit – Grants for Creation of Capital Assets

Effective Revenue deficit was introduced in the Union Budget 2012-13, on the suggestion of Rangarajan Committee

Fiscal Deficit

Fiscal Deficit is defined as excess of total budget expenditure (revenue and capital) over total budget receipts (revenue and capital) excluding borrowings during a fiscal year.

Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-Debt Creating Capital Receipts)

Fiscal deficit is a measure of how much the government needs to borrow from the market to meet its expenditure when its resources are inadequate.

Primary Deficit

Primary Deficit is defined as fiscal deficit of current year minus interest payments on accumulated debt.

Primary Deficit = Fiscal Deficit – Net Interest Liabilities

It is a measure of current year’s fiscal operation after excluding the liability of interest payment created due to borrowings undertaken in the past.

Monetized Deficit

Monetized Deficit refers to that part of the fiscal deficit which is financed by the government either by borrowing money or drawing-down its cash from the RBI.

Monetized Deficit = Borrowing from RBI + Draw-down by the government of its cash balance from the RBI.

It involves infusion of new money and hence expansion in money supply in the economy.

Types of Government Budgeting

Based on the underlying philosophy and the process followed, there are various types of government budgeting:

Line-Item Budgeting

• In a line-item system, expenditures for the budgeted period are listed according to objects of expenditure, called “line items”.
• It major ddvantage is that it facilitates centralized control and fixing of authority and responsibility of the spending units. However, it does not provide enough information to the top levels about the activities and achievements of individual units.

Performance Budgeting

• It uses performance information for the allocation of funds and management of a program and is aimed to increase the efficiency and effectiveness of public expenditures.
• It involves the precise definition of the work to be done or services to be rendered and a correct estimate of what that work or service would cost. Thus, under this type of budgeting, the emphasis gets shifted from the means of accomplishment to the accomplishments themselves.

Zero-Based Budgeting (ZBB)

• It is based on the concept that all programs of the Department were to be reviewed afresh from the base zero and not merely in terms of incremental changes proposed for the budget year. The basic tenet of Zero-Based Budgeting (ZBB) is that program activities and services must be justified annually during the budget development process.
• The Ministry of Finance formally introduced Zero-Base Budgeting in 1986 asking all the Ministries and Departments of the Government to adopt Zero-Base Budgeting approach with effect from the budget for 1987-88. However, it has not yet been fully implemented in India.

Outcome Budgeting

• Under Outcome Budgeting symbolizes a shift from traditional budgeting in the sense that it goes beyond budgeting by inputs (how much can we spend) towards budgeting by measurable outcomes (what can we achieve with what we spend). The first step in developing an outcome budgeting system involves the process of defining the desired outcomes. This is followed by the process of identifying the interventions required for achieving target outcomes. Finally, the expenditure required for implementing the identified interventions is estimated.
• The first outcome budget in India was passed by the Parliament on August 25, 2005. However, a consolidated Outcome budget covering all Ministries and Departments was laid down for the first time in Budget 2017-18.

Gender Budgeting

• Gender Budgeting is a method of planning, programming and budgeting that helps advance gender equality and women’s rights. It dissection of the Government budgets to establish its gender differential impacts and to ensure that benefits of development reach women as much as men.
• A Gender Budget Statement (GBS) was first introduced in the Indian Budget in 2005-06.

Related Concepts

Crowding out effect.

The crowding out effect is an economic theory suggesting that increased government spending leads to a reduction in private sector spending. The government increases taxation or borrowing in order to fund the increased spending. This leads to lesser money supply in the market as well as an increase in interest rates. This leads to reduction in private investment spending, which dampens the initial impact of the increase of total investment spending.

Fiscal Consolidation

Fiscal consolidation is a process where government’s fiscal health is improved by reducing fiscal deficit to levels which is manageable and bearable for the economy. Improved tax revenue realization and better aligned expenditure are important components of fiscal consolidation.

Off Budget Financing

• The Off-Budget Financing refers to the expenditure undertaken by the PSUs through the market borrowings based upon guarantee of repayment of loans given by Government.
• For example, if the government needs to invest in the Railways, it may ask the Indian Railway Finance Corporation (IRFC) to borrow money from the market and finance railway projects. However, the Government guarantees the repayment of principal and interest for the money borrowed by Indian Railway Finance Corporation in case it fails to repay the borrowed money.

Monetization of Deficit

• Monetization of deficit refers to the practice where a government finances its budget deficit by creating new money. This is typically done through the central bank, which buys government bonds or securities directly using new money that it has created, effectively increasing the money supply. The government then uses this money to cover its expenditures that exceed its revenue, such as public services, social programs, or infrastructure projects.
• Prior to April 1, 1997, the fiscal deficit of the government was mainly financed through monetization of the government deficits. However, this practice has been now discontinued and replaced by the Ways and Means Advance (WMA) system.

Ways and Means Advances (WMA)

• WMAs are short-term loan facility or an overdraft facility provided by the central bank to the government to bridge the gap between its payments and receipts. This tool allows the government to meet its immediate expenditure requirements without having to resort to last-minute or expensive borrowing from the market.
• The WMA facility is available for 90 days and its interest rate is linked to the Repo Rate.
• The WMA system replaced the practice of monetization of government deficit which had been in practice prior to April 1, 1997.

Fiscal Drag

Fiscal drag is an economic term whereby an increase in income or inflation or income moves taxpayers into higher tax brackets. The increase in taxes reduces aggregate demand and consumer spending from taxpayers as a larger share of their income now goes to taxes, which leads to deflationary policies, or drag, on the economy. Thus, it acts as an automatic fiscal stabilizer by controlling a rapidly expanding economy from overheating.

Fiscal Neutrality

• Fiscal neutrality is when a government taxing, spending, or borrowing decision has or is intended to have no net effect on the economy. Any new spending introduced by a policy change that is fiscally neutral is expected to be entirely offset by additional revenues generated; the net effect of the policy change is neutral with respect to the balance of the government’s budget. Thus, fiscal neutrality creates a condition where demand is neither stimulated nor diminished by taxation and government spending.
• A balanced budget is an example of fiscal neutrality, where government spending is covered almost exactly by tax revenue.

Pump Priming

Pump priming is the action taken to stimulate an economy usually during a recessionary period, through government spending, and interest rate and tax reductions. It, usually, involves measures to prompte higher demand for goods and services. The increase in demand experienced through pump priming can lead to increased profitability within the private sector, which assists with overall economic recovery.

Economic Stimulus

An economic stimulus is the use of monetary or fiscal policy changes to kick start growth during an economic recession. It involves measures such as lowering interest rates, increasing government spending and quantitative easing etc. For example, during the COVID-19 Pandemic, the Government announced 3 tranches of economic stimulus under the Atma Nirbhar Bharat Programme.

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A cheat sheet for reading the federal budget

Professor of Economics, University of Canberra

Senior Lecturer in Economics, Murdoch University

Disclosure statement

Phil Lewis does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. He also has no relevant affiliations. During his career he has received funding from many private and public sector organisations including most recently the ARC, NCVER, DEEWR, the AFPC, ABLA and CPA Australia.

Anne Garnett has received funding from the Australian Research Council and the National Centre for Vocational Education Research.

University of Canberra and Murdoch University provide funding as members of The Conversation AU.

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The federal budget rolls around, usually on the second week of May , every year. Last year there was over 600 pages of budget papers , pored over by politicians, journalists and lobbyists alike.

There are usually four separate budget papers, not to mention related materials such as the budget speech, overviews, ministerial statements, appropriation bills and much more.

A budget is a financial statement of the federal government’s revenues and expenditures for the next financial year and also a statement of fiscal policy proposals. However it also contains a host of proposals which may not be directly related to fiscal policy but have fiscal effects (for example increased taxes on cigarettes or cask wine may be justified on the basis of health policy but they also can be used to raise considerable revenue).

So, given we are all so time poor and would rather not wade through the hundreds of pages, what should we be looking for? Here are some ways to find things that we might want to know, or wish we didn’t know.

Is there a budget deficit, how much is it and how long until we balance the books?

The place to look is Budget Paper No. 1: Budget Strategy and Outlook, “Statement 1: Budget Overview, Table 1 – Budget Aggregates” .

The estimated budget deficit (the excess of expenditure over revenue) for the next financial year is measured by the “Underlying Cash Balance” in A$billions. The government makes projections for a further three years – the first year is the estimate for the year of the budget, in this case for 2015/16, which is followed by budget forecasts for three more years.

If you want to show budget deficits and surpluses over time, either in A$billion, or as a percentage of gross domestic product (GDP), you can find the data for this in the last column of “Table 1: Australian Government general government sector receipts, payments, net Future Fund earnings and underlying cash balance” in Budget Paper No. 1, “Statement 10: Historical Australian Government Data” .

What about government debt?

What might be of more concern than a deficit or surplus is the level of federal government debt. How fast it might be growing or shrinking and the economy’s capacity to manage it. There is no consensus about what level of debt is a problem and there are clearly differences of opinion particularly between the right and left of politics.

The Net Debt is the appropriate figure to look for. It is the sum of all government liabilities (gross debt) less government financial assets such as currency and deposits; debt securities and loans.

It’s easiest to find this by looking at the historical data in “Statement 10, Table 5”, in Budget Paper No. 1 .

From here you can see the current estimated debt level in A$billions and as a percentage of GDP for the current budget, along with all past budgets and any projections (this gives a more accurate comparison of relative debt levels over time).

Where does the government get its funds from?

It gets its money from taxes – which means from us.

Specific details of which types of tax raise the most money can be found in Budget Paper No. 1, “Statement 4: Revenue, Table 7 Australian Government general government (cash) receipts” .

If you look at this in pie chart form, income tax receipts are by far the largest source of income.

Where is the money spent?

When the government spends money, where does most of it go?

The details can be found in Budget Paper No. 1, “Statement 5: Expenses and Net Capital Investment, Table 3: Estimates of expenses by function” .

For more information on the major areas where government is spending you need to look at the various tables of “Summaries of expenditure” .

For instance, in the social security and welfare category for the 2015/16 budget we can see that aged care expenditure is by far the largest category, and with an ageing population, this will grow. “Assistance to people with disabilities” is forecast to grow at the fastest rate, as the National Disability Insurance Scheme rolls out.

In a few years it will approach total spending on aged care This can be seen from the ‘Projections’ column in “Table 9: Summary of expenses — social security and welfare” .

In the health summary, found in “Table 8: Summary of expenses - health” , we can see things such as how expensive Medicare is. The “medical services and benefits” category mainly consists of Medicare and Private Health Insurance Rebate expenses. Last year’s Budget also stated that Medicare expenses are the major reason for expected increases in expenditure in this category.

The education summary table has interesting information such as how much goes to public schools and how much to private schools. You can also see a forecast of higher education spending.

Where can we find the ‘hidden risks’ in the budget?

Since 1998 the government has been required by law under the Charter of Budget Honesty Act to have “Statement 8: Statement of Risks” . Section 8 takes some reading, but it outlines risks to the estimates in the budget.

For a more obscure example, according to the Space Activities Act (1998) , the government is liable to pay for damage up to A$3 billion caused to Australians if a space object that an Australian company has launched falls out of the sky and damages something or someone (that is if damage exceeds the space object’s company’s own private insurance against such things). Now that would put a hole in budget estimates!

What if we dig a little deeper?

The Other Budget Papers – 2, 3 and 4

In case you were wondering about the other budget papers, they contain some of the nitty gritty details of the broad categories of revenue and expenditure outlined in Budget Paper No.1.

Budget Paper No. 2: Budget Measures contains the fine details of revenue and spending by government departments and government programs.

For example, it is here that in the 2015/16 budget we find that the Department of Foreign Affairs and Trade intends to substantially increase revenue from passport fees , from $1.7 million in 2015-16 to $5.4 million by 2018-19.

In this part of the 2015/16 budget papers you could also find the almost tripling of expenditure in the government’s Youth Employment Strategy Program, from $22 million in 2015-16 to $60.8 million in 2016-17.

Budget Paper No. 3: Federal Financial Relations outlines the federal relations and any payments from the commonwealth government to the state and territory governments.

You can find details of federal government payments by department (e.g. health, education), and by state and territory.

Budget Paper No. 4: Agency Resourcing may be of less interest to most people, as it provides technical details of budget resource management, including financial resources and staff resources.

But if you look closely, you can find items such as estimates of average staffing levels in federal government departments. For example, the 2015/16 budget detailed staff numbers for the the National Film and Sound Archive (237) federal government staff members, the Australian Electoral Commission (788), and the Australian Tax Office (18,482).

The budget speech

If all of this is too much, for a summary of the main policy changes, you can listen to the Treasurer’s budget speech on budget night, or read the speech transcript on the budget website .

It is often quite brief and will provide the size of the budget deficit/surplus, any tax changes, new expenditure policies and new programs. But it will have political spin, so if you need to look further, hopefully this guide will help to navigate the budget papers without too much trauma.

• Federal Government
• Federal Budget 2016

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17.1 Government Spending

Learning objectives.

By the end of this section, you will be able to:

• Identify U.S. budget deficit and surplus trends over the past five decades
• Explain the differences between the U.S. federal budget, and state and local budgets

Government spending covers a range of services that the federal, state, and local governments provide. When the federal government spends more money than it receives in taxes in a given year, it runs a budget deficit . Conversely, when the government receives more money in taxes than it spends in a year, it runs a budget surplus . If government spending and taxes are equal, it has a balanced budget . For example, in 2020, the U.S. government experienced its largest budget deficit ever, as the federal government spent $3.1 trillion more than it collected in taxes. This deficit was about 15% of the size of the U.S. GDP in 2020, making it by far the largest budget deficit relative to GDP since the mammoth borrowing the government used to finance World War II. To put it into perspective, the previous record deficits were experienced during the Great Recession of 2007–2009, when the deficit reached 9.6% of GDP.

This section presents an overview of government spending in the United States.

Total U.S. Government Spending

Federal spending in nominal dollars (that is, dollars not adjusted for inflation) has grown by a multiple of more than 38 over the last four decades, from $93.4 billion in 1960 to $6.8 trillion in 2020. Comparing spending over time in nominal dollars is misleading because it does not take into account inflation or growth in population and the real economy. A more useful method of comparison is to examine government spending as a percent of GDP over time.

The top line in Figure 17.2 shows the federal spending level since 1960, expressed as a share of GDP. Despite a widespread sense among many Americans that the federal government has been growing steadily larger, the graph shows that federal spending has hovered in a range from 18% to 22% of GDP most of the time since 1960. For example, throughout the latter part of the 2010s, government expenditures were around 20% of GDP. The other lines in Figure 17.2 show the major federal spending categories: national defense, Social Security, health programs, and interest payments. From the graph, we see that national defense spending as a share of GDP has generally declined since the 1960s, although there were some upward bumps in the 1980s buildup under President Ronald Reagan and in the aftermath of the terrorist attacks on September 11, 2001. In contrast, Social Security and healthcare have grown steadily as a percent of GDP. Healthcare expenditures include both payments for senior citizens (Medicare), and payments for low-income Americans (Medicaid). State governments also partially fund Medicaid. Interest payments are the final main category of government spending in Figure 30.2.

Each year, the government borrows funds from U.S. citizens and foreigners to cover its budget deficits. It does this by selling securities (Treasury bonds, notes, and bills)—in essence borrowing from the public and promising to repay with interest in the future. From 1961 to 1997, the U.S. government has run budget deficits, and thus borrowed funds, in almost every year. It had budget surpluses from 1998 to 2001, and then returned to deficits.

The interest payments on past federal government borrowing were typically 1–2% of GDP in the 1960s and 1970s but then climbed above 3% of GDP in the 1980s and stayed there until the late 1990s. The government was able to repay some of its past borrowing by running surpluses from 1998 to 2001 and, with help from low interest rates, the interest payments on past federal government borrowing had fallen back to 1.6% of GDP by 2020.

We investigate the government borrowing and debt patterns in more detail later in this chapter, but first we need to clarify the difference between the deficit and the debt. The deficit is not the debt . The difference between the deficit and the debt lies in the time frame. The government deficit (or surplus) refers to what happens with the federal government budget each year. The government debt is accumulated over time. It is the sum of all past deficits and surpluses. If you borrow $10,000 per year for each of the four years of college, you might say that your annual deficit was $10,000, but your accumulated debt over the four years is $40,000.

These four categories—national defense, Social Security, healthcare, and interest payments—generally account for roughly 60% of all federal spending, as Figure 17.3 shows. (Due to the large amount of one-time expenditures by the federal government in 2020 due to the pandemic, the 2019 statistics are presented here.) The remaining 40% wedge of the pie chart covers all other categories of federal government spending: international affairs; science and technology; natural resources and the environment; transportation; housing; education; income support for people in poverty; community and regional development; law enforcement and the judicial system; and the administrative costs of running the government.

State and Local Government Spending

Although federal government spending often gets most of the media attention, state and local government spending is also substantial—at about $3.3 trillion in 2021. Figure 17.4 shows that state and local government spending has increased during the last four decades from around 8% to around 14% today. The single biggest item is education, which accounts for about one-third of the total. The rest covers programs like highways, libraries, hospitals and healthcare, parks, and police and fire protection. Unlike the federal government, all states (except Vermont) have balanced budget laws, which means any gaps between revenues and spending must be closed by higher taxes, lower spending, drawing down their previous savings, or some combination of all of these.

U.S. presidential candidates often run for office pledging to improve the public schools or to get tough on crime. However, in the U.S. government system, these tasks are primarily state and local government responsibilities. In fiscal year 2020 state and local governments spent about $970 billion per year on education (including K–12 and college and university education), compared to only $100 billion by the federal government. In other words, about 90 cents of every dollar spent on education happens at the state and local level. A politician who really wants hands-on responsibility for reforming education or reducing crime might do better to run for mayor of a large city or for state governor rather than for president of the United States.

Taxes are paid by most, but not all, people who work. Even if you are part of the so-called “1099” or “gig” economy, you are considered an independent contractor and must pay taxes on the income you earn in those occupations. Taxes are also paid by consumers whenever they purchase goods and services. Taxes are used for all sorts of spending—from roads, to bridges, to schools (K–12 and public higher education), to police and other public safety functions. Taxes fund vital public services that support our communities.

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Economics Project on Government Budget – Class 12 CBSE

Table of Contents

INTRODUCTION:

A Government Budget is an annual statement presenting the Government’s proposed revenues and spending for a financial year that is often passed by the legislature, approved by the Chief Executive or president, and presented by the finance minister to the nation. The budget is also known as the Annual Financial Statement of the country. This document estimates the anticipated government expenditures for the ensuing financial year. For example, Property Tax.

In the modern world, every Government aims at maximizing the welfare of its country. It requires several infrastructural economics and welfare activities. This required appropriate planning and policy of the Government, which is called the Budget. All these activities related to Infrastructure, Welfare, and Economic growth depend upon one thing. The solution to all these problems is known as the ‘Budget.’

“A budget is a document containing detailed programs and policies of action for the given fiscal year.”

DEFINITION:

The budget is a financial plan of the Government for a definite period.

A budget is a document containing a preliminary approved plan of public revenues and expenditure.

The government budget is an annual statement showing item-wise estimates of receipts and expenditures during a fiscal year.

IMPORTANT THINGS ABOUT THE GOVERNMENT BUDGET:

The budget is prepared by the Government at all levels, i.e., the Central Government prepares its respective annual Budget.

Estimates expenditures and receipts are planned as per the objectives of the Government.

The budget is presented in the parliament on such a day, as the President may direct. By conventions, it is presented, before it can be implemented.

It is required to be approved by the parliament.

OBJECTIVES OF GOVERNMENT BUDGET:

• Reallocation of Resources
• Economic Stability
• Reducing inequalities in Income and Wealth
• Economic Growth
• Management of Public Enterprises
• Reducing Regional Disparities

Reallocation of Resources:

Through the budgetary policy, the Government aims to reallocate resources to the economic and social priorities of the country.

• Tax Concessions or Subsidies.
• We are directly producing goods and services.

Reducing Inequalities in income and wealth:

Economics inequality is an inherent part of every economic system.

The government aims to reduce such inequalities of income and wealth through its budgetary policy. The government aims to influence the distribution of income by imposing taxes on the rich and spending more on the welfare of the poor.

Economic Stability:

The government budget is used to prevent business fluctuations of inflation and deflation from achieving the objective of economic stability. Policies of the surplus budget during inflation and deficit budget during deflation help to maintain the stability of prices in the economy.

Management of Public Enterprises:

There are a large number of public sector industries , which are established and managed for the social welfare of the public. The budget is prepared with the objective of making various provisions for managing such enterprises.

Economic Growth:

The growth rate of a country depends on the rate of saving and investment. For this purpose, the budgetary policy aims to mobilize sufficient resources for investment in the public sector. Therefore, the Government makes various provisions in the budget.

COMPONENTS OF BUDGET:

Revenue Budget:

• Revenue Receipts
• Revenue Expenditure
• Capital Budget:
• Capital Receipts
• Capital Expenditure

Components of the budget refer to the structure of the budget. Two main components of the budget are:

Revenue Receipts:

Revenue Receipts refer to those receipts that neither create any liability nor cause any reduction in the assets of the Government. They are regular and recurring, and the Government receives them in its normal course of activities. Revenue Receipts satisfy these conditions. The receipts must not create a liability for the Government. The receipt must not cause a decrease in the assets of the Government.

Sources of Revenue: There are two types of Revenue Receipts of the Government.

• Tax Revenue:

Tax Revenue refers to the total of receipts from taxes and duties imposed by the Government. For example, Direct tax and Indirect Tax. Tax is a compulsory payment. No one can refuse to pay for it. Tax receipts are spent by the Government for the common benefit of people in the country. Direct taxes are taxes that are imposed on the property and income of individuals and companies are paid directly by them to the Government. They are imposed on individuals and companies. Indirect Taxes refer to those taxes which affect the income and property of individuals and companies through their consumption of expenditures.

How to Classify a Tax as Direct or Indirect? A tax is a direct tax if its burden cannot be shifted. For example, Income tax is a direct tax as its impact and incidence are on the same person.

• Non-Tax Revenue:

It refers to receipts of the Government from all sources other than those of tax receipts. Interest : The government receives interest on loans given by it to state government union territories. Fees : Fees refer to charges imposed by the Government to cover the cost of recurring services provided by its court fees registration fees import fees etc. License Fees: It is a payment charged by the Government to grant permission to keep a commercial vehicle. Fines and Penalties: They refer to that payment, which is imposed on lawbreakers, fines for jumping light, etc. Escheats: It refers to claims of the Government on the property of a person who dies without leaving a will. Gifts and Grants: The government receives gifts and grants from a foreign government. Forfeitures: These are in the form of penalties that are imposed by the court for non-compliance with others’ contracts, etc.

Revenue Expenditure:

Revenue Expenditure refers to the expenditure, that neither creates any liability nor causes a reduction in any liability of the Government. It is recurring in nature. It is incurred on the normal functioning of the Government. The expenditure must not create an asset of the Government payment expenditure as it does not create any asset. Metro is not a revenue expenditure as it leads to the creation of an asset for the Government.

Capital Budget: The main two components of the Capital Budget are:

• Capital Receipts:

Capital Receipts refer to those receipts which either create liability or cause a reduction in the assets of the Government. They are non-recurring and non-routine. The receipts must create a liability for the Government. Borrowings are capital receipts as they lead to an increase in the liability of the Government. However, the tax received is not a capital receipt as it does not result in the creation of any liability. The receipts must cause a decrease in the assets; receipts from the scale of the share of public enterprises is a capital receipt as it leads to a reduction in assets of the Government. Capital receipts are of three types:

A. Borrowings:

They are the funds raised by the Government to meet excess expenses. Government Open Market. Reserve Bank of India. Foreign Government.

B. Recovery of Loans:

The government grants various loans to the state Government or Union Government.

C. Other Receipts:

These include Disinvestment and small savings. Disinvestment refers to the act of selling a part of the whole of shares of a selected public sector undertaking held by the Government. Small saving refers to funds raised from the public in the form of post office deposits.

Items Categorized as Revenue and Capital Receipts:

• Loans from the World Bank: It is a capital receipt as it neither creates any liability nor reduces any asset.
• Corporation Tax: It is a revenue receipt as it neither creates any liability nor reduces any assets.
• Grants received from World Bank: It is a revenue receipt as it neither creates any liability nor reduces any asset of the Government.
• Profits of Public Sector Undertaking: It is a revenue receipt as it reduces the assets of the Government.
• Foreign did against earthquakes victims: It is a revenue receipt as it neither reduces any asset of the Government.
• Capital Expenditure:

It refers to the expenditure, that either creates an asset or reduces any liability of the Government. It is non-recurring. It adds to the Capital Stock of the economy and increases its productivity through expenditure. Example: Loan to states and union territories expenditure on building roads, flyovers, etc. The expenditure must create an asset for the Government. For example, the Construction of the Metro is a capital expenditure as it leads to the creation of the asset. However, any amount paid as salaries is not capital in the assets.

How to Classify Revenue or Capital Expenditure:

An expenditure is a capital expenditure if it is either an asset or reduces a liability. An expenditure is revenue expenditure if it neither creates any asset nor reduces any liability.

• Subsides: It is a revenue expenditure as it neither creates any asset nor reduces any liability of the Government.
• Grants Given to State Government: It is a revenue expenditure as it neither creates an asset nor reduces any liability of the Government.
• Repayment of Loans: It is capital expenditure as it reduces the liability of the Government.
• Purchase of 20 Cranes for the Flyover: It is a capital expenditure as it creates an asset to the Government.
• Expenditure Incurred on Administration: It is a revenue expenditure as it does not reduce the liability.
• Payment of Salary to Staff: It is a revenue expenditure as it neither creates any asset nor reduces any liability of the Government.
• Construction of School Building: It is a capital expenditure as it increases the asset of the Government.

Plan and Non-Plan Expenditure:

Planned expenditure refers to the expenditure that is incurred on the programs detailed in the current five-year plan. Non-planned expenditure refers to the expenditure other than the expenditure related to the current five-year plan.

Difference Between Plan & Non-Plan Expenditure:

Plan Expenditure is spent on current development, and investment outlays on non-plan expenditure are spent on the liability of the Government. Non-planned expenditure is spent on the liability of the Government and arses only when the plans provide such expenditure.

Developmental and Non-Developmental Expenditure:

Developmental Expenditure refers to the expenditure, which is directly related to the economic and social development of the country. Expenditure on such services is not a part of the essential functioning of the Government. Non-Development Expenditure refers to the expenditure which is incurred on the essential goods and services of the Government. It does not directly contribute to economic development, but it indirectly helps in the development of the economy. Such expenditures are essential from the administrative view.

TYPES OF BUDGET:

• Balanced Budget
• Surplus Budget
• Deficit Budget

Budgetary Deficit:

A budgetary Deficit is defined as the excess of total estimated expenditure over total estimated revenue when the Government spends more time it collects; then, it incurs a budgetary deficit concerning the budget of the Indian Government.

• Revenue Deficit
• Fiscal Deficit
• Primary Deficit

Revenue Deficit:

Revenue Deficit is concerned with the revenue expenditure and revenue receipts of the Government. It refers to the excess revenue expenditure of revenue receipts.

Implications:

It indicates the inability of the Government to meet its regular and recurring expenditures in the proposed budget. It implies that the Government is dissolving, i.e., the Government is using up saving from other sectors of the economy to finance its expenditure. The use of capital receipts for meeting the extra consumption expenditure leads to an inflationary situation in the economy.

Fiscal Deficit:

The fiscal Deficit presents a more comprehensive view of budgetary imbalances. It is widely used as a budgetary development in India. The extent of the fiscal deficit is an indication of how far the Government is spending.

A fiscal Deficit indicates the total borrowings requirements of the Government.

Sources of Financing Fiscal Deficit:

Borrowing: Fiscal Deficit can be met by borrowings from internal sources or external sources.

Deficit Financing: The government may borrow from RBI against its securities to meet the fiscal deficit.

Primary Deficit:

Primary Deficit refers to the difference between the fiscal deficit of the current year and interest payment on the previous borrowings.

It indicates how much of the Government borrowings are going to meet those expenses other than the interest payments. The difference between fiscal deficit and primary deficit shows the number of interest payments on the borrowings made in the past. “So Zero primary deficit indicates the interest commitments of the Government.”

Union Budget Estimated for 2017-18:

Criticism about government budget:.

This Budget is all Talk/Hype and no substance:

If there is one cliché that has been uttered even more than Ravi Shastri’s tracer bullet, it is this. There’s a reason this gets the #1 Position. Hell, you may be on substance, but you can still say that the budget has no substance, and it would pass for acceptable criticism.

This Budget has Nothing for the Common man:

Here’s another rule for a spokesperson or a member or a supporter in the opposition – the budget can never have anything for the common man. It doesn’t matter even if the budget abolishes taxation completed. It still DOES NOT have anything for the common man.

The Budget is idealistic, not practical:

This is a more subtle, politically correct criticism of the budget, particularly suitable for the rare occasion when everyone else seems to think that the Finance Minister has nailed the Budget. When a budget is so good that it’s just extremely difficult to criticize, this is the statement to use.

What is being done to fight corruption? What about black money?

This one is the go-to line if you’re a self-styled anti-corruption crusader. You don’t have to care two hoots about the budget. For you, this is another ripe opportunity to pounce on and exhibit your “Anti-Corruption” by saying that the budget has nothing about fighting corruption and bringing black money back. Easy, because no budget likely will. At most, the budget will make mention the Government being “Committed” to fighting against Corruption.

My Opinion About Government Budget:

After listening to a long 2-hour speech by the finance minister, I had some equally frustrating and fascinating thoughts, moving beyond the usual debate of “will this be good economics or bad politics?” and vice-versa. The two can co-exist. As a whole, the Budget needs to move away from populist and prudent definitions. It needs to be examined on the merit of what it does to different classes of people. It had a huge impact, and I had to take a bit of time properly digest what I heard. I had to contextualize it with the other Budget (in the past years) as well as the needs of the current scenario. These are a few thoughts about the Budget.

Acknowledgment:

I would like to express my special thanks of gratitude to __________ my economics teacher as well as the one who allowed me to do this project on the topic “Government Budget” which also helped me in doing a lot of research and I came to know about so many things.

This project would not have been completed without the guidance of my economics teacher. She has been a constant source of inspiration and a helping hand in the completion of this project. I would also like to thank all the individuals who served me in this project.

CERTIFICATE:

This is to certify XYZ of Class XII has been completed his / her Economics project on the topic of Government Budget and its components under the Guidance of XYZ during the academic year 2018-2019 as per the guidelines issued by the Central Board of Secondary Education (CBSE).

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• Government Budget Meaning And Its Components

What is the Government Budget?

Meaning of government budget.

The government budget is an annual fiscal statement depicting the revenues and expenditures for a financial year that is often moved by the legislature, sanctioned by the Chief Executive or President, and given by the Finance Minister to the country. The budget is also known as the Annual Financial Statement of the nation.

Also Check: Objectives of Government Budget

Components of Government Budget

In terms of Article 112 (1) of the Constitution of India, a statement of estimated receipts and expenditure of the Government of India is presented to the Parliament every year. Article 112(2) provides that the estimate of expenditure embodied in this annual financial Budget, shall show separately. This Annual Financial Statement comprises the main budget document of the government.

Whilst the budget document relates to the receipts and expenditures of the government for a particular fiscal year, the effect of it will be there in the following years.

•       There is an obligation to have two accounts that are associated with the current financial year and are incorporated in the revenue account which is also known as revenue budget.
•       Those that concern the assets and liabilities of the government into the capital account are known as the capital budget.
•       In order to comprehend the accounts, it is significant to understand the aims of the government budget.

Also Read: Concept of Government Budget and the Economy

Elements of Government Budget

There are two main elements of the Government Budget. They are as follows:

Budget receipts: It refers to the estimated receipts of the government from all the sources during a fiscal year. It is of two types.

• Capital receipts
• Revenue receipts

Budget expenditure: It refers to the estimated expenditure of the government on various developmental as well as non-developmental programs during a fiscal year. It is of two types.

• Capital expenditure
• Revenue expenditure

The above-mentioned is the concept that is explained in detail about Government Budget – Meaning and its Components. To know more, stay tuned to our website.

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Government Budget

A government budget is often a government document delivering the government’s planned revenues and spending for a financial year that is certainly often passed through the legislature, approved through the chief executive or even president and presented through the Finance Minister for the nation. The budget is also referred to as the Annual Financial Statement on the country. Government budget are three types: Balanced Budget, Surplus Budget and Deficit Budget.

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Inflation Is Stubborn. Is the Federal Budget Deficit Making It Worse?

Economists are divided over whether the growing amount of federal borrowing is fueling demand and driving up prices.

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By Jim Tankersley

Jim Tankersley covers economic policy from the White House

A crucial question is hanging over the American economy and the fall presidential election: Why are consumer prices still growing uncomfortably fast , even after a sustained campaign by the Federal Reserve to slow the economy by raising interest rates?

Economists and policy experts have offered several explanations. Some are essentially quirks of the current economic moment, like a delayed, post-pandemic surge in the cost of home and auto insurance . Others are long-running structural issues, like a lack of affordable housing that has pushed up rents in big cities like New York as would-be tenants compete for units.

But some economists, including top officials at the International Monetary Fund, said that the federal government bore some of the blame because it had continued to pump large amounts of borrowed money into the economy at a time when the economy did not need a fiscal boost.

That borrowing is a result of a federal budget deficit that has been elevated by tax cuts and spending increases. It is helping to fuel demand for goods and services by channeling money to companies and people who then go out and spend it.

I.M.F. officials warned that the deficit was also increasing prices. In a report earlier this month, they wrote that while America’s recent economic performance was impressive, it was fueled in part by a pace of borrowing “that is out of line with long-term fiscal sustainability.”

The I.M.F. said that U.S. fiscal policies were adding about a half a percentage point to the national inflation rate and raising “short-term risks to the disinflation process” — essentially saying that the government was working at cross-purposes with the Fed.

Biden administration economists, and some analysts on Wall Street, reject that view. Administration officials said that the analysis underlying the I.M.F.’s claims was implausible. That’s in part because the report found that federal policy was adding just as much to inflation currently as it did two years ago, at a time when direct payments to consumers and other programs from President Biden’s 2021 stimulus bill were increasing spending across the economy.

Administration officials pointed to other measures of fiscal policy , including a continuing analysis by the Brookings Institution in Washington, that suggested that government tax and spending policies were not significantly adding to economic growth or inflation now or in the recent past.

“I don’t think the recent inflation record supports an excessive demand story,” Jared Bernstein, the chairman of the White House Council of Economic Advisers, said in an interview. “I think what we’ve seen is that as supply chains have unsnarled, demand in the job market has cooled somewhat. We’ve been able to maintain historically low unemployment while getting significant disinflation.”

Mr. Bernstein added that, while administration officials were careful not to comment on the central bank’s interest rate decisions, “our fiscal stance is not fighting the Fed.”

The debate is important for how the Fed, which bears primary responsibility for controlling price growth, sets policy in the months ahead.

Investors entered the year expecting Fed officials to cut interest rates several times, after price growth slowed rapidly in 2023 and began to approach the central bank’s target level of 2 percent per year. They have revised those forecasts as new data show that progress stalling out and, by many measures, beginning to reverse.

How policymakers view the interplay between deficits and inflation could also shape decisions by the next president and Congress. If re-elected, Mr. Biden said that he would seek to reduce deficits by about $3 trillion over a decade, primarily by raising taxes on high earners and corporations. His Republican opponent, former President Donald J. Trump, has repeated his past — and unfulfilled — promises to eliminate the national debt , while also pushing for an extension of his 2017 tax cuts that could add trillions to deficits.

Both presidents’ policies, along with decisions by presidents before them , have contributed to the nation’s current fiscal imbalance. The deficit spiked when Mr. Trump, and then Mr. Biden, signed relief bills for people and businesses amid the coronavirus pandemic. It fell in the 2022 fiscal year but effectively doubled last year .

The deficit is now larger, as a share of the economy, than is historically normal for this point in an economic recovery — when unemployment is low and economic growth remains strong.

That is even true if you exclude the costs of servicing the government’s mounting debt load, which jumped last year as the Fed raised interest rates, a measure economists call the “primary deficit.” When properly measured, the primary deficit last year was equal to about 5 percent of the economy’s annual output. Data from the nonpartisan Congressional Budget Office suggest that it was the sixth-highest primary deficit of any year since 1962; the other five all came during, or immediately after, the pandemic or the 2008 financial crisis.

High deficits could affect inflation in a few ways. They could increase demand for goods or services that remain in relatively short supply, driving up prices. They could affect consumers’ views about how much inflation they expect in the future and chip away at the effectiveness of Fed rate increases to slow growth, said Joseph H. Davis, the chief global economist at the investment firm Vanguard.

Mr. Davis said that the shift from a declining deficit to a rising one was most likely adding modestly to price growth and making the Fed’s job more difficult: “What used to be a tailwind on inflation has become more of a headwind,” he said.

The deficit increase last year reflected several factors, including volatile capital gains tax collections and the effects of natural disasters on tax filing. It also reflected increased government spending and tax breaks signed into law by Mr. Biden. A bipartisan 2021 infrastructure bill is now funding roads, broadband and other projects nationwide. The government is paying for additional health benefits for veterans exposed to toxic burn pits.

Tax incentives in a bipartisan law meant to encourage semiconductor production and a party-line law intended to accelerate the transition from fossil fuels to lower-emission energy sources have spurred hundreds of billions of dollars in announcements or spending on new factory construction.

“It was a large dose of fiscal stimulus over the last year,” said Jason Furman, a Harvard economist who chaired the White House Council of Economic Advisers under President Barack Obama. “To get people lower mortgage rates,” he added, “to give businesses the ability to expand and invest and grow, we need to be bringing the deficit down.”

Data from other economists, like the creators of the Hutchins Center Fiscal Impact Measure at Brookings, suggest that the increase in spending and tax breaks last year did not outweigh the drag on the economy from expiring Covid relief. In other words, they effectively show that the end of stimulus aid that propped up consumer demand in the early stages of the pandemic offset any increased demand from new spending and tax breaks.

Economists at the investment bank UBS wrote last week that after adding to growth last year, including by fueling factory construction, federal tax and spending policy was likely to “flip” to dragging on growth this year. Economists at Bank of America Securities made a similar case last week after the Commerce Department reported that economic growth slowed in the first months of this year.

Administration officials said there were simpler — and superior — explanations for why price growth remained above the Fed’s target than the deficit. Housing inflation has not moderated as quickly as many economists expected, though White House models predict it will soon. Price growth in auto insurance, financial services and medical services are effectively one-offs that are keeping inflation elevated now, the officials said, but will not continue to push prices higher in the months to come.

“It’s not really a fiscal story,” Mr. Bernstein said.

Jim Tankersley writes about economic policy at the White House and how it affects the country and the world. He has covered the topic for more than a dozen years in Washington, with a focus on the middle class. More about Jim Tankersley

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6 facts about Americans’ views of government spending and the deficit

As President Joe Biden and congressional Republicans continue to negotiate on raising the U.S. debt ceiling , the public has nuanced views on related issues such as the preferred size of government, the amount of government assistance to the poor, and the priority of reducing the budget deficit. Here are six facts about Americans’ views of the government, spending and the deficit based on Pew Research Center surveys from this year.

Pew Research Center conducted this analysis to provide insight into the public’s views about the size of government and aspects of government spending and revenue as President Joe Biden and Congress continue negotiations around the debt ceiling. For this analysis, we included data from two surveys in 2023: one with 5,152 U.S. adults conducted Jan. 18-24 and the second with 5,079 U.S. adults conducted March 27-April 2.

Everyone who took part in these surveys is a member of the Center’s American Trends Panel (ATP), an online survey panel that is recruited through national, random sampling of residential addresses. This way nearly all U.S. adults have a chance of selection. The survey is weighted to be representative of the U.S. adult population by gender, race, ethnicity, partisan affiliation, education and other categories. Read more about the ATP’s methodology .

Here is the question from the Jan. 18-24 survey used in this analysis, along with responses, and its methodology . Here are materials for the questions on taxes and government size and role from the March 27-April 2 survey, along with its methodology .

The public remains split on what the government’s size should be. About half of Americans (49%) say they would rather have a bigger government providing more services, while a similar share (48%) would prefer a smaller government providing fewer services, according to a Center survey conducted March 27-April 2. These views have remained relatively stable since 2019. Democrats and Democratic-leaning independents are more than three times as likely as Republicans and Republican leaners to say they would prefer a bigger government (75% vs. 22%).

The public is also divided on the role of government. While 52% say government should be doing more to solve problems, 46% say government is doing too many things that would be better left to businesses and individuals. These attitudes are also deeply divided along partisan lines: While about three-quarters of Democrats (77%) say the government should do more to solve problems, a similar share of Republicans (75%) say the government is doing too many things.

Americans are more likely to want to increase than reduce the size of the U.S. military. About four-in-ten Americans (43%) say that the size of the U.S. military should be increased, compared with 17% who say it should be reduced; 38% say it should be kept about as is. The share of the public saying the military should expand has risen 6 percentage points since July 2021. Currently, military spending makes up about 12% of the overall federal budget but nearly half of so-called discretionary spending, which excludes entitlement programs such as Social Security and Medicare.

Republicans are far more likely than Democrats (62% vs. 27%) to favor increasing the size of the military. There also are age differences: Older adults are more supportive than younger adults when it comes to expanding the size of the military.

More Americans also favor increasing, rather than reducing, government aid to the poor. While 43% favor increasing aid to the poor, 26% say the government should provide less assistance, and 30% say the current level of aid is about right. Democrats are much more likely than Republicans to say the government should provide more assistance to those in need, but Republicans’ views vary by age and income. Younger and lower-income Republicans are more likely than older and higher-income Republicans to say that the government should provide more assistance to those in need.

Majorities favor raising taxes on large companies and high earners. About two-thirds of Americans (65%) say that tax rates on large businesses and corporations should be raised. A somewhat similar share (61%) support raising tax rates on household incomes over $400,000. On both questions, Democrats are much more likely than Republicans to say that tax rates should be increased.

Reducing the budget deficit is a higher priority for the public than it was last year. The share of the public saying that reducing the budget deficit should be a top priority for the president and Congress this year has increased by 12 points since 2022, according to a January 2023 Center survey . Today, 57% say that reducing the budget deficit should be a top priority, compared with 45% in 2022. Both Republicans and Democrats are more likely now than in 2022 to say this should be a top priority, but Republicans are still much more likely to prioritize this than Democrats are (71% vs. 44%).

Note: Here is the question from the Jan. 18-24 survey used in this analysis, along with responses, and its methodology . Here are materials for the questions on taxes and government size and role from the March 27-April 2 survey, along with its methodology .

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Ted Van Green is a research analyst focusing on U.S. politics and policy at Pew Research Center

Congress has long struggled to pass spending bills on time

What the data says about food stamps in the u.s., 5 facts about the u.s. national debt, biden loses ground with the public on issues, personal traits and job approval, the u.s. budget deficit is rising amid covid-19, but public concern about it is falling, most popular.

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Missouri Senate to debate $50 billion state budget, with time running out. Here's what to know

The Missouri Freedom Caucus, a faction of the state GOP, has vowed to debate the budget in detail and attempt to cut hundreds of millions in spending. That could push final votes on spending past the constitutional deadline of May 10.

The Missouri Senate’s budget plan approved in a committee Wednesday has more money for workers who help people with developmental disabilities , more to help low-income families afford child care and more for counties to defray the cost of holding people convicted of felonies .

There are also big new road projects and a boost to higher education funding.

The committee did make some cuts to House-approved items, including slashing $2.5 million for schools to install artificial intelligence gun detection equipment and $10 million for medical research with psilocybin mushrooms to treat mental illness.

Over two days, the Senate Appropriations Committee dug through thousands of individual lines as it prepared a spending plan for floor debate. Totals were not immediately available but the additions mean the Senate plan will be closer to Gov. Mike Parson’s $52.7 billion proposal than the $50.8 billion spending plan the House approved.

The budget will be on the Senate floor this week. Final approval could prove difficult with the six-member Freedom Caucus promising extended debate by digging into every item added to the budget for the coming year.

Republicans on the committee also injected a new issue into the budget at the end of Wednesday’s hearing: a provision, targeting Kansas City, that punishes any city declaring itself a sanctuary for undocumented immigrants with the loss of all state funding.

Among the larger items added during the markup session are:

• $171 million to increase pay to at least $17 an hour for people helping adults with developmental disabilities in their daily lives. There is also $9 million to pay a $2 differential for night work.
• $80 million for reconstructing U.S. Highway 67 in Butler County. There is also $30 million for road improvements near a beef processing plant in Wright City and $48 million for improvements to U.S. Highway 65 between Buffalo and Warsaw.
• $5 million to increase payments to counties for jail time served by inmates who are later convicted of felonies and sent to state prisons. With $5 million added by the House, it would increase the per-day rate to $27.31 from the current $22.58, an amount that has not been increased since fiscal 2017. State law  in effect since 1997  allows up to $37.50 per day but it has never been funded.
• Restored $25 million cut from child care subsidies for lower income families and set new rates based on the latest rate study. The House directed that a rate study produced for the 2021-22 fiscal year be used.
• Restored cuts the House made to Medicaid budget lines that pared back the amount set aside for anticipated cost increases. 

The restored money in Medicaid lines, and in other places in the budget, is to make sure departments can function until lawmakers can pass a supplemental spending bill next year, said state Sen. Lincoln Hough, a Republican from Springfield and chair of the appropriations committee

“I don’t want any of those things running out of money while we’re not here,” he said.

The money for developmental disability services will help diminish a waiting list, said Val Huhn, director of the Department of Mental Health. A boost in pay last year helped recruiting and the waiting list stopped growing, she said.

“Our waitlist is kind of stagnant, but we’re not seeing an increase,” she said.

Hough said he was disappointed last year that the full boost wasn’t possible.

“It’s one of those things that takes a long time, and we ended up kind of with half of what I really wanted to do,” Hough said. “This was finishing off, more or less, a commitment from last year.”

Another change made in the budget that won’t add costs is to take one employee from each of the state’s prisons and assign them to a centrally directed investigations unit. Their job will be to improve interdiction of contraband coming into the prisons.

That has proven difficult and arrests of corrections officers in recent years for carrying drugs into prisons illustrates the issue. In one instance, a corrections officer brought drugs in soda cans and another brought rolls of paper soaked in synthetic cannabinoid .

Trevor Foley, director of the Department of Corrections, said contraband gets into prisons in a variety of ways and catching it will also require a variety of approaches.

“There’s prevention, there’s perimeter security, there’s searches, there’s body scanners, there’s pushing our perimeters back, there’s drone monitoring,” he said. “There’s staff reviews, there’s visitor reviews, there’s vendor and delivery screenings.”

A wrongful death lawsuit filed earlier this month over a prisoner suicide describes the ease at which items can move from cell to cell even in the administrative segregation unit. Prisoners run strings that can move items as heavy as bed sheets from cell to cell. Sometimes goods are moved between floors, the lawsuit says, based on video obtained from the department.

It is very difficult to catch those types of activities, Foley said.

“I would need to triple my staff to have eyes watching every camera, even splitting them up by floors,” he said.

As of Friday, there will be two weeks left for lawmakers to finish a budget before the constitutional deadline. The deadline has only been missed once, and legislative leaders expressed confidence they can meet it again, although it will be close.

“Time is of the essence,” House Budget Committee Chairman Cody Smith said Thursday. “We do have enough time but certainly we are on the countdown.”

Smith said he needs time to study the changes made by the Senate to determine which he can accept.

‘I will reserve judgment until I understand what’s in the legislation,” Smith said. “I don’t think I really have a clear understanding of that.”

This story was originally published by The Missouri Independent, part of the States Newsroom.

Brazil's government sees 2024 fiscal target as feasible despite March deficit

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Raise JobSeeker by $17 a day, advisory committee tells government

An expert panel tasked with advising the federal government on income supports says the JobSeeker unemployment payment must be increased by about $17 a day as a "first priority" in next month's budget, arguing any move would have a "negligible" inflationary impact.

The Economic Inclusion Advisory Committee was established in 2022 following negotiations with independent senator David Pocock over unrelated legislation.

It is chaired by former Labor minister Jenny Macklin and includes academics, community sector advocates, business representatives and unions and provides advice ahead of every budget.

In this year's report, the committee said the payments remain too low and have left many to forego essentials.

The federal government announced a $40-per-fortnight base rate increase in last year's budget, but the committee said the rate remained "seriously inadequate".

It found there had been some improvement in the economic security of recipients in the past 12 months following that increase, but it was limited.

The panel appealed for the government to increase JobSeeker and related income supports to 90 per cent of the age pension in next month's budget.

Based on the current rates, that would see the JobSeeker payment for single people with no dependent children increase from just over $54 a day to nearly $72 a day.

Previous committee analysis revealed as of 2019 Australia had the lowest benefits for short-term unemployed people in the OECD.

Increasing payments to 90 per cent of the aged pension would move Australia to the second lowest in the OECD, above New Zealand, the UK and US.

They also recommended a review of indexation arrangements for the payments to apply more consistency and labelled the current method unsatisfactory.

In their report the committee called for the government to outline a time frame for change, if increases are to be staged.

Inflation impact minimal, committee argues

The committee sought analysis of the inflationary impact of its proposal, noting the "heightened concern around inflation in Australia."

This analysis suggested the effect would be "small to negligible".

The committee estimated the cost of the change would be in the order of $4.6 billion a year. The smaller increase delivered in the last federal budget cost $1.3 billion a year.

In a media release, Treasurer Jim Chalmers and Social Services Minister Amanda Rishworth said the advice would be an "important input" to budget deliberations but did not indicate whether it would adopt the recommendations.

"We will always do what we can for people where it is responsible and affordable, and weighed up against other priorities and fiscal challenges," the ministers said.

"We can't fund every good idea and everything we would like to do."

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