What is a budget surplus?

A budget surplus occurs when income is greater than spending. When people, organizations, or governments run a budget surplus, it means they have extra funds that they can use to do things like pay off debt. Governments often release information about their budget for the benefit of the interested public, and you can find graphs that show the government's surplus over time.

The opposite of a budget surplus is a budget deficit, and most people, organizations and governments actually have a deficit, not a surplus. This is because it is often necessary to go into debt to finance activities that will lead to improvements. The trick with deficits and surpluses is to ensure that debt servicing doesn't become such a burden that the budget can't handle it. The task of organizing a budget to allow for debt and expense management is known as budget balancing.

When a budget surplus arises, there are several ways to deal with it. In families, a decision can be made to save the extra money, based on the fact that it can provide a financial buffer in case someone loses their job or unexpected expenses arise. A budget surplus can also be used to pay off debt principal to reduce interest payments. Individuals can also choose to use the surplus to finance purchases that are delayed or considered optional; for example, a surplus in the school budget can lead to the decision to buy new scientific equipment.

Being in a state of budget surplus is often seen as a positive and, in the case of governments, as a sign that the economy is healthy and the government is doing well. Some governments reward citizens in times of surplus by lowering tax rates, although this has proved problematic because it can be difficult to balance the budget later on. Others can use surpluses to reinvest in people and communities.

People should be aware that budget numbers can be and sometimes are manipulated to advance specific political, economic or social agendas. Estimates of surpluses and deficits can sometimes vary greatly because people use different rubrics to arrive at numbers. When someone quotes a number, it is wise to ask about the source and methods used to arrive at that number, rather than accepting it at face value.

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