Budget deficit is the amount of excess of budget expenditures over its revenues in each budget year.
Budget surplus is the amount of excess of budget revenues over its expenses in each budget year.
A fully balanced state budget, that is, a budget without a balance, is only theoretically possible. Even if the draft budget is balanced, it is almost impossible to maintain equality during its implementation. Identify the positive and negative aspects of the budget deficit.
Positive side– the policy of deficit financing leads to increased economic growth.
Negative side- budget deficit leads to an increase in public debt, an increase in the tax burden, and stimulates inflationary processes.
A budget deficit can arise as a result of:
1. The need to make large public investments in economic development,
2. Emergency circumstances (war, major natural disasters, etc.).
3. Crisis phenomena in the economy, its collapse, ineffectiveness of financial and credit relations, etc. - the most dangerous and alarming form of budget deficit, when it is a reflection of crisis phenomena in the economy, its collapse, the inability of the government to keep the financial situation in the country under control.
Functions of the budget deficit:
1. distributions (redistributions),
2. fund-forming,
3. stimulating,
4. control.
The following are distinguished: types of budget deficit:
Structural deficit- a deficit included in the structure of income and expenses when forming the budget.
Budget deficit or surplus calculated for an economy in natural level unemployment, at the natural level of GNP, as well as at tax rates and amounts of transfer payments determined by current legislation. Typically, the presence of a structural deficit is the result of discretionary fiscal policy. Discretionary fiscal policy is a government's deliberate change in taxes (tax rates) and the volume of government spending (expenditures on goods and services and transfer payment programs) in order to ensure the production of non-inflationary GNP at full employment and stimulate economic growth.
Represents the calculated difference between current government expenditures and revenues, assuming some fixed (natural) level of unemployment.
Cyclic deficit- state budget deficit caused by a decline in business activity and a reduction in tax revenues.
The difference between the actual observed deficit and the structural deficit. This deficit varies throughout the business cycle. If the actually observed budget deficit is less than the structural deficit, then the difference between the structural and real deficit is called cyclical surplus.
Operating deficit– the total state budget deficit minus the inflationary part of interest payments to service the public debt.
Quasi-fiscal (hidden) deficit state budget - due to the quasi-fiscal (quasi-budgetary) activities of the Central Bank, as well as state enterprises and commercial banks.
Quasi-fiscal operations include:
a) financing by state enterprises of excess employment and payment of wage rates above market rates through bank loans or through the accumulation of mutual debt;
b) accumulation in commercial banks that separated at the initial stages economic reforms from the Central Bank, a large portfolio of non-performing loans (overdue debt obligations of state-owned enterprises, concessional loans to households, firms, etc.) These loans are repaid mainly through concessional loans from the Central Bank;
c) financing by the Central Bank (in transition economies) of losses from measures to stabilize the exchange rate, interest-free and preferential loans to the government (for the purchase of wheat, rice, coffee, etc.) and refinancing loans to commercial banks for servicing non-performing loans, as well as refinancing Central Bank of agricultural, industrial and housing programs at preferential rates, etc.
Hidden budget deficit underestimates the size of the actual budget deficit and public debt, which can be done purposefully (for example, before elections), as well as as part of the government’s “tough” policy towards an annually balanced budget.
Primary deficiency- represents the difference between the size of the total deficit and the amount of interest payments on the debt. With debt financing of the primary deficit, both the principal amount of the debt and its service ratio increase, i.e. the “burden of debt” in the economy increases.
The theory also distinguishes between active and passive deficits.
Active deficiency arises as a result of cost overruns. It can be associated with increased investment in new production, which leads to job creation, increases employment and income levels.
Passive deficit– due to a decrease in tax and other revenues (due to a slowdown in economic growth, underpayments).
A budget deficit that approximately corresponds to the level of inflation in the country is considered normal. Such budget deficits are usually covered by low-interest or interest-free loans from the Central Bank. International standards suggest a possible budget deficit at the level of 2 - 3% of GNP. Typically, a budget deficit of up to 10% of revenue is considered acceptable, while a deficit of more than 20% is considered critical.
Most complex problem is the problem of balancing the budget.
There are various methods to cover the budget deficit:
1. Monetary emission (monetization).
First form - money issue. In the case of monetization of a deficit, seigniorage often arises - government income from printing money. Seigniorage occurs against the backdrop of excess growth rates money supply above the growth rate of real GNP, which leads to an increase in the average price level. The consequences of such an issue are as follows:
Uncontrolled inflation is developing,
Incentives for long-term investments are undermined, investment activity decreases,
The price-wage spiral unwinds,
The standard of living of the population is falling, the savings of the population are depreciating,
The budget deficit is being reproduced.
In order to maintain economic and social stability, the governments of developed countries avoid in every possible way the unjustified issue of money.
Second form - credit issue. Monetization of the state budget deficit may not be directly accompanied by the issue of cash, but may be carried out in other forms, for example, in the form of an expansion of Central Bank loans to state-owned enterprises at preferential interest rates or in the form of deferred payments. In the latter case, the government buys goods and services without paying for them on time. If purchases are made in the private sector, then manufacturers increase prices in advance to insure against possible non-payments. This gives an impetus to increase general level prices and inflation rates. If deferred payments accumulate for public sector enterprises, these payments are often financed by the Central Bank or accumulate, increasing the overall government budget deficit. Therefore, although deferred payments, in contrast to monetization, are officially considered a non-inflationary way of financing the budget deficit, in practice this division turns out to be very conditional.
2. Issue of loans.
Government loans can be carried out in various forms:
In the form of transfer of government securities;
Loans from extra-budgetary funds;
Getting loans.
If the government budget deficit is financed by issuing government loans, then the average market rate percent, which leads to a decrease in investment in the private sector, a drop in net exports and partly to a decrease in consumer spending. As a result, a crowding out effect occurs, which significantly weakens the stimulating effect of fiscal policy. Debt financing of the budget deficit is often seen as an anti-inflationary alternative to monetizing the deficit. However, the debt financing method does not eliminate the threat of rising inflation, but only creates a temporary delay for this growth, which is typical for many transition economies. If government loan bonds are placed among the population and commercial banks, then inflationary tension will be weaker than when they are placed directly with the National Bank.
In the case of mandatory (forced) placement of government bonds in extra-budgetary funds at low (and even negative) interest rates, debt financing of the budget deficit essentially turns into a mechanism for additional taxation.
Government loans are less dangerous, but they also undermine to some extent market economy if there is a forced placement of government securities or the possibilities for private firms to obtain loans are narrowed, which increases the demand for loans in the loan capital market and contributes to an increase in the cost of loans, i.e., an increase in the discount rate.
If government debt accumulates, it becomes government debt. The concept of public debt and methods of managing it were discussed above.
3. Increase in tax revenues to the state budget.
The problem of increasing tax revenues to the state budget goes beyond own financing budget deficit, as allowed in long term based on a comprehensive tax reform aimed at reducing rates and expanding the tax base.
4. Sequestration of expenses.
Its essence is a proportional reduction in government spending on all unprotected budget items.
The list of protected articles usually includes:
wage;
accruals for wages;
transfers to the population (scholarships, pensions, benefits, non-cash housing subsidies and other payments to the population in accordance with the legislative acts of the Republic of Belarus);
Food;
medicines and dressings;
interest on government debt;
repayment of public debt;
payment for services of research organizations.
The reduction of the budget deficit must be carried out according to a specially developed program. It must provide the following measures:
Increasing the efficiency of social reproduction, which will contribute to the growth of financial resources;
Further development and strengthening of market relations, carrying out market reforms; denationalization and privatization of property (in order to reduce budget financing);
Expanding the circle of payers should be carried out simultaneously with optimizing taxation;
Development of territorial-regional cost accounting (strengthening the independence of regions);
Optimization of the volume and restructuring of state budget expenditures in general and primarily directed to the real sector of the economy;
Maintaining funding only for the most important and justified adoption of new social programs;
Improving planning and system development paid services in the non-production sphere;
Adjustment of transfer policy, involving a reduction in transfer payments to industries real sector economy, increasing the efficiency of transfer payments;
Reforming the budget process as a whole. It is necessary to abandon the concept of priority of budget expenditures and deficit financing;
Drawing up a budget on a multi-option basis in order to form optimal structure income and expenses;
Development of the government securities market, which will allow financing state expenses without increasing the money supply in circulation;
Taking measures aimed at attracting foreign capital to the country in the form of investments.
For achievement real effect and reducing the budget deficit, the listed measures should be considered in their unity and applied comprehensively.
Budget device, principles of construction
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Cyclical deficit - deficit federal budget, caused by a decline in business activity and the resulting reduction in tax revenues.
With GDP, the structural deficit is ab, and the cyclical deficit is zero. The government should increase Gili and cut G to eliminate this deficit, but it may want to do this over several years to avoid sending the economy into recession.
A budget deficit at full employment is also called a structural deficit in contrast to a cyclical deficit.
The actual budget deficit in any given year consists of the full employment deficit (or structural deficit) and the cyclical deficit. In this case, this deficit actually exists because at GDP, government spending exceed tax revenues. At GDP, the structural deficit is ab, and the cyclical deficit is zero.
We emphasize again: discretionary fiscal policy is about deliberately changing the full employment deficit (or structural deficit), but not about changing the cyclical deficit. Since the actual budget deficit consists of structural and cyclical deficits, it cannot be used to judge the government's fiscal policy.
The bulk of the actual budget deficit in the 1980s and early 1990s was not due to cyclical deficits, which arise as a result of an automatic reduction in tax revenues when GDP is below full employment.
It does not take into account the lack of tax revenue that arises from underemployment production. The cyclical deficit is the difference between G VL T caused by tax revenues being below what they would be at full employment.
A state that uses finance as a tool for regulating the economy may deliberately increase budget expenditures or reduce the tax burden on entrepreneurs. In this case, the emergence of a structural budget deficit is inevitable. The cyclical budget deficit is caused primarily by a reduction in the tax base in the context of falling production in the phases of economic crisis and depression, and only secondarily by the government’s desire to compensate for the reduction in demand by increasing government spending. The opposite situation arises in the phases of recovery and recovery: with the growth of production, the tax base expands and budget revenues increase, but the government reduces expenses in order to offset the increase in demand from entrepreneurs and the population.
The automatic stability achieved, that is, the change in tax revenues in direct proportion to GDP, means that the surplus or deficit of the current or actual budget in any given year is not indicative of the government's fiscal policy. Now imagine that investment spending has decreased, causing production to decline to the level of GDP. Let us assume that the government does not take any discretionary action. Therefore, lines G and T remain in the position shown on the graph. The resulting cyclical dc deficit, so named because it is linked to the business cycle, is not the result of specific government countercyclical fiscal measures, but rather a byproduct of fiscal inaction as the economy slid into recession.
The key problem with this budget concept is that booms and busts in economic cycle may vary in depth and duration. Consequently, the task of stabilization comes into conflict with the task of balancing the budget during the cycle. As a result, a new phenomenon arises - a cyclical budget deficit.
Thus, the budget deficit and surplus are related to the volume of production, which makes it possible to distinguish between structural and cyclical deficits. The real deficit may be greater than the structural one. The main reason for this phenomenon is the decline in production. It leads, on the one hand, to a reduction in the income of the population and entrepreneurs, which reduces tax revenues to the treasury, and on the other hand, to an increase in unemployment payments and other social programs, which increases government spending. The difference between the real and structural deficit is called the cyclical budget deficit.
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State budget expenditures and its revenues do not always coincide. If expenditures exceed revenues, then the government faces budget deficit. The opposite situation, i.e., the excess of income over expenses, is called budget surplus , or excess.
It is customary to distinguish primary and general government budget deficit.
Primary deficiency is the total government budget deficit reduced by the amount of interest payments on the government debt. The primary surplus is determined by analogy.
It is also common to distinguish actual, structural and cyclical government budget deficit.
Actual deficit- is the negative difference between actual (actual) government revenues and expenditures.
Structural deficit is the difference between state budget revenues and expenditures, calculated for the level of national income corresponding to full employment. In other words, this is the difference that would exist if the economy were at full employment under the current tax system and government spending passed by the legislature.
Cyclic deficit is the difference between the actual and structural government budget deficit. Cyclical deficits are a consequence of fluctuations in economic activity during the business cycle. At the same time, changes in tax revenues and government spending occur automatically.
A graphical representation of the budget deficit and budget surplus (surplus) is given in Fig. 1.
Rice. 1. Government spending, tax revenue and government deficit
G - government spending;
T - tax revenues; Y - income.
IN point E- balanced budget, i.e. tax revenues are equal to government expenditures (T = G).
Let's say that the country has a proportional taxation system. Bid income tax is 20%, or 0.2. So, if Y = 0, then T = 0; at Y = 1000 billion dollars, tax revenues, i.e. T, will be: Y x 0.2 = 1000 billion dollars x 0.2 = 200 billion dollars. If the income is 1500 billion dollars, then tax revenues will be 1500 billion dollars x 0.2 = 300 billion dollars, etc.
Let's say the actual Y = 600 billion dollars, then T = 600 billion dollars x 0.2 = 120 billion dollars; with G = 200 billion dollars, the actual budget deficit will be (T - G) = 120 billion dollars - 200 billion dollars = -80 billion dollars).
But if, with the same tax rate and level of G, the income would be $1200 billion, i.e., correspond to full employment, then there would be no state budget deficit: T = 1200 x 0.2 = $240 billion. ; G = 200; T - G = 240 - 200 = 40 billion dollars (budget surplus).
What is the cyclical deficit? Recall that it represents the difference between actual and structural deficits. In our example it will be: -80 - (+40) = -120.
Indeed, how does the actual deficit reach a value of -80, if under conditions of full employment the state budget would be in surplus? Obviously, due to factors of the economic situation, when a decrease in income caused by a decrease in business activity leads to a decrease in tax revenues.
When analyzing fiscal policy and the budget deficit, it is important to pay attention to the approach already known from the previous analysis “leaks - injections».
Previously, we considered the equality S (“leakage”) = I (“injection”). At the same time, we abstracted from those “leaks” and “injections” that are associated with the government’s fiscal policy.
But, taking into account that the state carries out both public expenditures and collects taxes, we can apply the “leakage-injection” approach here too. The already known types are joined by some others, which we will now take into account.
With the strengthening of the state and the expansion of the functions it performs, the need for financial resources - funds at the disposal of the state, its institutions, organizations and enterprises. Financial resources are the object financial relations as an integral part of the system of economic relations. In a strictly economic sense, finance expresses gratuitous relations based on mandatory payments, in contrast to monetary relations. financial system can be defined as a set of institutions and relationships that mediate the formation, distribution and use of financial resources. In the process of formation and use of financial resources, a redistribution of the social product and national income occurs. Sometimes the financial system includes credit institutions and relationships that are already considered as a financial and credit system. Accumulating cash, the state, through financial mechanisms, carries out the implementation of the political, economic, and social functions assigned to it by society.
Central place in the system public finance occupies the state budget. Budget - this is the ratio of the volume and structure of income and expenses of the subject in question. In this case, the state is considered as the subject. Each state has one or another budget system.
Budget system - this is the totality of the budgets of national-administrative-territorial entities of the state, as well as independent budgets in financial activities government institutions, based on economic relations and legal norms.
The organizational structure of the budget system depends entirely on the form government structure. Budget system unitary states includes two links: the state budget and local budgets. In states with a federal structure, the budget system consists of three links (levels) - along with state and local budgets, the budgets of the constituent entities of the federation are allocated. The totality of budgets at all levels forms a consolidated budget.
The defining link of the budget system is the state budget, or centralized fund of monetary resources, which the government has at its disposal to ensure economic and national security country, performing political, military-strategic and socio-economic functions and influencing the process of social reproduction in order to achieve growth and balance of the national economy. It should be noted quite complex system interaction between the state budget itself and budgets of other levels, since financial resources can be allocated from centralized funds in the form of subsidies, interest payments, while simultaneously burdening budgets of other levels with costs for the maintenance of the state apparatus, road construction, maintenance of internal affairs bodies, etc.
The state budget is drawn up for one year. It represents a plan of government expenditures and sources of covering them, which acquires the force of law after discussion and approval of its draft by the legislative authorities. The executive branch (government) reports to them and is responsible for the execution of the budget; for its failure, the government may be dismissed after the report.
The main source of revenue to the state budget is taxes, which account for about 90% of all revenue to the budgets of industrialized countries. The rest of the revenue is covered by various types of government fees, duties, and deductions. The totality of taxes, fees, duties and other payments levied in the state, the principles of their construction, as well as the forms and methods of their collection forms tax system.
Among the expenditure items of the state budget, the main ones are the costs of social services and benefits. The functional purpose of these expenditure items is to ensure relatively equal conditions for citizens of the country to receive education, health care, culture, and social protection services for the poor; ensuring guaranteed by law minimum conditions life activity of a person, smoothing out the differentiation of income levels of different social groups population.
An important place in budget expenditures is given to expenses for economic needs as a means of maintaining economic conditions, economic activity, ensuring the development of individual industries, areas, territories, and carrying out state investment programs and projects.
Significant specific gravity The expenditure side of the state budget includes expenses for military needs, both direct and indirect (benefits and pensions for disabled war veterans, veterans, interest on military debts), as well as for the maintenance of the state apparatus and law enforcement agencies.
Particularly noteworthy is the expense item associated with the payment of interest on public debt arising from the issuance of government loans. In all industrialized countries, over the past 10-15 years, budget expenditures under this item have increased significantly in both absolute and relative terms.
Another part of the state financial system are off-budget or special (target) funds. These funds, according to their intended purpose, can be economic (small business support fund), social (insurance funds, pension funds), political (providing support for regimes, political line). The most common sources for the formation of extra-budgetary funds are taxes, deductions from the budget, and special contributions. An example of a special fund in our country is Pension Fund RF.
Special funds can be either temporary or permanent. They are increasingly used as a means of regulating social relations.
The assessment of the state of public finances is determined by the ratio of revenues and expenditures of the state budget. The excess of state budget expenditures over revenues is called budget deficit. It is a consequence of the imbalance of public finances. The excess of the revenue side of the state budget over its expenditure side is called budget surplus.
The increase in the budget deficit to enormous proportions and its chronic nature indicate a disorder to one degree or another in the state’s financial system, which is fraught with negative consequences both for the monetary economy and for the economy as a whole. However, the budget deficit associated with solving acute problems social problems, activation of investment and economic activity, weakening the cyclical decline in social production, can be assessed as a positive phenomenon, because otherwise society may receive a cumulative negative effect of unpredictable force.
By the nature of its origin, it is necessary to distinguish between cyclical and structural budget deficits.
Cyclic deficit - the result of the onset of a production decline phase, which causes a reduction in revenues to the budget due to a narrowing of the scope of taxation and an increase in spending on social needs (for example, unemployment benefits), maintaining socially necessary sectors of the economy.
Structural deficit - This is the excess of expenses over income, caused by the government's financial policy aimed at increasing expenses and reducing taxes in order to prevent a recession or revive the economy and bring it out of a depressed state.
The criterion for distinguishing between the cyclical and structural components of the budget deficit is the calculation of the budget deficit at a natural unemployment rate of 6%. The size of the structural component of the state budget deficit (surplus) is determined by its size at the natural level of unemployment. The difference between the real and structural deficit is “imputed” to the cyclical deficit. With an increase in the natural level of unemployment, the cyclical component of the budget deficit increases and, conversely, with its decrease, it decreases.
Depending on the nature of the government's financial policy, the budget deficit can be active or passive.
Active deficiency due to the financial policy of the state aimed at increasing its expenses and reducing taxes, which is a way to increase economic activity.
Passive deficit caused by contraction government revenues as a result of a decline in economic activity.
The budget deficit, in turn, significantly affects the monetary economy and the functioning of the economy as a whole. If there is a budget deficit, the government is forced to look for sources to cover it. Among them, the most important are a sharp reduction in spending, money emission, including credit money, and government borrowing.
The reduction in budget expenditures is associated with cuts or abandonment of government social programs (education, culture, healthcare, social Security), savings in funds spent on maintaining the state apparatus, army, etc.
may be different.
1. The deficit may be associated with the need to make large government investments in economic development. In this case, it does not reflect the crisis social processes, A government regulation economic conditions, the desire to ensure progressive changes in the structure of social production. J.M. Keynes also substantiated the possibility of allowing government spending to grow faster than income at certain stages of social development.
2. Deficits arise as a result of emergency circumstances: war, major natural Disasters etc., when usually reserves become insufficient and you have to resort to sources of a special kind.
3. The deficit may reflect crisis phenomena in the economy, its collapse, ineffectiveness of financial and credit relations, and the inability of the government to keep the financial situation in the country under control. In this case, it is an extremely alarming phenomenon, requiring the adoption of not only urgent and effective economic measures(on stabilization of the economy, financial recovery of the economy, etc.), but also relevant political decisions.
Based on the reasons for the budget deficit, we can conclude that in a dynamically developing economy with sustainable, and most importantly, effective international relations, the budget deficit (of course, within quantitatively permissible limits) is not terrible. It should not be overly dramatic. Many economically lived and continue to live in debt the developed countries. True, in this case the quantity should not go into negative quality, i.e. the amount of financial resources received by the state should not place a heavy burden on the country's economy, on the shoulders of taxpayers, or be accompanied by a reduction in social programs. The situation is considered controlled when the public debt does not exceed half of the gross national product and the budget deficit does not exceed 2–3%.
This chapter covers the main types of budget deficits, such as:
The cyclical budget deficit is the result of the action of built-in stabilizers.
The structural budget deficit is the difference between budget expenditures and revenues under conditions of full employment.
The operating budget deficit is the total state budget deficit minus the inflationary part of interest payments on servicing the public debt.
The primary budget deficit is the difference between the total deficit and the total amount of debt payments.
Quasi-fiscal deficit of the state budget is a hidden deficit of the state budget, caused by quasi-fiscal activities of the state.
Cyclical government budget deficit.
Cyclical deficit (surplus) The state budget is the result of the built-in stabilizers of the economy. "Built-in" (automatic) stabilizer - an economic mechanism that allows you to reduce the amplitude of cyclical fluctuations in employment and output levels without resorting to frequent changes economic policy. Such stabilizers in industrialized countries typically include a progressive tax system, a government transfer system (including unemployment insurance), and a profit-sharing system.
At discretionary fiscal policy to stimulate aggregate demand During periods of economic downturn, the government makes special decisions aimed at increasing employment and output levels. In the course of implementing these decisions, due to increases in government spending (for example, to finance programs to create new jobs) or tax cuts, the government deliberately creates a state budget deficit. Accordingly, during the recovery period, in order to curb inflationary trends, a budget surplus is purposefully created.
At non-discretionary In fiscal policy, budget deficits and surpluses arise automatically, as a result of the action of built-in stabilizers of the economy, since these mechanisms are “turned on” without direct government intervention.
Creation effective systems Progressive taxation and employment insurance is a top priority for transition economies, where the objective difficulties of stabilization policy are combined with the lack of adequate tax, monetary and other macroeconomic management mechanisms.
The degree of built-in stability of the economy directly depends on the magnitude of cyclical budget deficits, which serve as automatic “shock absorbers” of fluctuations in aggregate demand. It is caused by an automatic reduction (increase) in tax revenues and an increase (reduction) in government transfers against the background of a cyclical decline (rise) in business activity (Fig. 1.1).
Explanations: In a cyclical expansion phase, total income increases (Y2 > Y0), and therefore tax contributions automatically increase and transfer payments automatically decrease.
Figure 1.1. Budget deficits
As a result, the cyclical fiscal surplus increases and the inflationary boom is relatively contained. During the cyclical downturn phase, total income decreases (Y1< Y0), и поэтому налоги автоматически падают, трансферты растут. В итоге увеличивается циклический бюджетный дефицит на фоне относительного роста совокупного спроса и объема производства, что относительно ограничивает глубину спада.
Quantities cyclical deficits(surplus) are determined by the degree of “steepness” of the graphs of the tax and budget functions. The slope of the tax function T is determined by the marginal tax rate t, and the slope of the government expenditure function G is determined by the value that characterizes the relationship between the change in the amount of the transfer received and the change in the amount of income. The higher the income level, the higher the tax paid and the lower the transfer received from the government.
Even in the case when all government spending G is simplified as a constant value that does not depend on the dynamics of current income, the higher the level of tax rates t and the steeper the line T, the higher the degree of built-in stability of the economy. cyclical budget deficits and surpluses are greater than in the T2 position, and therefore the built-in stabilizers have a more strong impact to an increase or decrease in aggregate demand.
All other things being equal, the higher the level of marginal tax rates and the higher the ratio between the change in the amount of government transfers and the change in national income, the higher the level of marginal tax rates, as well as the degree of built-in stability of the economy.
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