Definition
- Budget deficit
- The budget deficit is the amount by which government spending exceeds tax revenue over one year, and so what the government borrows in that year.
- Not to be confused with: National debt
- The national debt is the total amount that the government has borrowed over time and has not yet repaid.
Example
Can you think of an example of budget deficit?
A government spends £1,100 billion and raises £1,000 billion, so the deficit is £100 billion. Its debt rises from £2,500 billion to £2,600 billion. Over the same year nominal GDP grows from £2,700 billion to £2,900 billion, so the debt falls from 92.6 to 89.7 per cent of GDP even though it rose in pounds.
Test yourself
What is the difference between budget deficit and national debt?
The deficit is one year of borrowing, a flow; the debt is the total still owed, a stock.