Budget Surplus

Published Dec 23, 2022

Definition of Budget Surplus

A budget surplus is defined as a situation in which a government’s income exceeds its expenditures. That means the government has more money coming in than it has going out. This can be achieved either through increased taxation or reduced spending.

Example

To illustrate this, let’s look at the federal budget of an imaginary country. In 2020, the that country had a total income of USD 6 trillion and total expenditures of USD 4 trillion. That means it had a budget surplus of USD 2 trillion.

Why Budget Surplus Matters

Budget surpluses are important for governments because they can be used to pay off debt or invest in infrastructure and other projects. This can help to stimulate the economy and create jobs. In addition, budget surpluses can also help to reduce inflation, as the government can use the extra money to buy back bonds and other securities, thus reducing the money supply. Finally, budget surpluses can also help to increase the government’s credit rating, which can lead to lower interest rates and more access to capital.