A budget is considered balanced when total revenues are equal to or greater than total planned expenditures, resulting in no budget deficit. This can be determined either in the planning stage (projected revenues matching or exceeding expected expenses) or in hindsight after a full year of revenues and expenses have been incurred and recorded. In the context of government budgets, a balanced budget means the government's income from taxes and other sources is sufficient to cover all its planned spending, without the need for borrowing.
Key Characteristics of a Balanced Budget
- Revenues equal or exceed expenses.
- No budget deficit occurs.
- Sometimes a budget surplus (revenues exceed expenses) is also considered balanced.
- In the case of government budgets, it reflects fiscal discipline and avoids increasing public debt.
Practical Considerations
- A budget can only be definitively called balanced after a fiscal period's full financial results are accounted for.
- Balanced budgets are important for financial stability, avoiding debt accumulation, and maintaining economic confidence.
- Governments may achieve a balanced budget over the economic cycle, sometimes allowing deficits during downturns offset by surpluses during growth periods.
In summary, a budget is considered balanced when planned or actual revenues meet or exceed the planned or actual expenditures, ensuring no deficit exists.
