Just like households, if a government spends more money than it brings in, it has a deficit (indicated by a negative number). If it spends less than it brings in, it has a budget surplus (indicated by a positive figure). A government that has a deficit year after year increases its government debt.
In 2012, individual countries within the OECD ranged from a surplus of 15.2% for Norway, 0.9% for Korea and 0.7% for Switzerland, to large deficits in Ireland (8.1% of GDP) and the United States (8.5%.) By 2014, the budgets of most Advanced Economies are expected to be on the mend. The UK’s projected 6% deficit for that year remains a sticking point, however, along with Spain’s -5.9%, Ireland’s -5.3%, the US’ -5.2%, and Greece’s -4.6%.
Outside the OECD, the Russian Federation maintained a small government surplus of 0.5% in 2012 and is expected to continue to balance its budget through 2014 at least. Brazil and China had deficits of around 2% of GDP, which are predicted to remain constant over the next year or so. India had a much larger budget shortfall, at 8.4%, which is only going to shrink to 7.6% by 2014. South Africa also registered a negative 5% in its 2012 budget, which the OECD foresees will decrease to 4.7% this year and to 4% in 2014.
Carlo Cottarelli, director of the Fiscal Affairs Department of the International Monetary Fund, discusses budgets, deficits and surpluses in Advanced and Emerging Economies.
IMF Says Fiscal adjustment on track.
In its latest Fiscal Monitor publication, dating October 2012, the IMF assesses that “with growth weakening in many parts of the world and downside risks on the rise, fiscal consolidation remains challenging. However, considerable progress has been made over the last two years in strengthening the fiscal accounts following their sharp deterioration in 2008–09, and more is planned.”
There are different schools of thought about deficits. Many economists, mainly those in the Keynesian school, believe that governments should run deficits during recessions and periods of high unemployment to compensate for lack of private demand; it is only during times of full employment and strong economic growth that governments should work to balance the budget. These economists assert that the stimulus packages enacted around the world following the 2007 economic crises have indeed increased budget deficits in the short term but, more importantly, they have downgraded a potential new “Great Depression” into a “Great Recession.”
Economists on the other side argue that the more important issue is to immediately reduce the deficit by cutting taxes and government spending. While at the start of the crisis world leaders seemed to be adhering to Keynesian economic theories – with huge stimulus packages in several countries – by the early part of 2010 government started calling for cuts in public expenditures as market turmoil was sparked by rising deficits in countries in the euro area, Greece in particular, and later in 2011, Italy and Portugal.