The state budget and its deficit. Ways to reduce it

In this article, its composition and the deficit of the state budget, is reflected in the sources and ways of overcoming them.

Keywords: state budget, budget revenues, budget expenditures, budget deficit, financing the deficit, ways of reducing deficit

В этой статье описываются состав и дефицит государственного бюджета, анализируются истоки дефицита, а также пути его преодоления.

Ключевые слова:государственный бюджет, бюджетные затраты, бюджетные доходы, бюджетный дефицит, пути сокращения дефицита

The only way America can reduce the long-term budget deficit, maintain vital services, protect Social Security and Medicare, invest more in education and infrastructure, and not raise taxes on the working middle class is by raising taxes on the super-rich.

Robert Reich

The state budget is a balance of the state's revenues and expenditures over a certain period of time (usually a year), which is the country's main financial plan, which, after its adoption by the legislature (parliament, state Duma, congress, etc.) acquires the force of law and is mandatory for execution. In carrying out its functions, the state incurs numerous expenses. For purposes of state expenditures can be divided into expenditures:

− for political purposes:

1) the costs of national defense and security. Maintenance of the army, police, ships;

2) expenses for the maintenance of the apparatus of state administration.

− for economic purposes:

1) the cost of maintaining and maintaining the public sector of the economy,

2) the cost of assistance (subsidies) to the private sector of the economy.

− for social purposes:

1) the cost of social security (payment of pensions, scholarships, allowances);

2) the costs of education, health, the development of basic science, environmental protection.

State purchases of goods and services (their value is included in GDP), transfers (their value is not included in GDP), payment of interest on government bonds (servicing of public debt). The main sources of income of the state are taxes (including contributions for social insurance), profit of state enterprises, seignior age (income from the issue of money), income from privatization. The difference between the state's revenues and expenditures is the balance (state) of the state budget. The state budget may be in three different states:

1) when budget revenues exceed expenditures (T> G), the budget balance is positive, which corresponds to surplus of the state budget;

2) when revenues are equal to expenditures (G = T), the budget balance is zero, i.e. The budget is balanced;

3) when budget revenues are less than expenditures (T

At different phases of the economic cycle, the state of the state budget is different. When the recession falls, budget revenues decline (as business activity and, hence, tax base decrease), so the budget deficit (if it existed initially) increases, and the surplus (if observed) is reduced. In the case of a boom, on the contrary, the budget deficit is decreasing (as tax revenues increase, budget revenues), while the surplus increases. So, state budget has process of deficits. There are structural, cyclical and actual budget deficits. The structural deficit is the difference between public spending and budget revenues that would have entered into it in conditions of full employment of resources under the current taxation system:

– structural budget deficit; G — public expenditure; T — tax rate; — potential GDP.

Fig. 1. Government budget as % of GDP. (2016 year) [1]

Cutting the deficit can cause problems. If a country has a deficit that increases too quickly, the government may be forced to adopt to policy aimed at a sharp deficit reduction. This can cause economic problems. For example, many countries in the Eurozone have sought to reduce their budget deficit to comply with EU rules. This deficit reduction has caused lower growth and recession.

Methods of financing the state budget deficit. The deficit of the state budget can be financed in three ways:

2) due to a loan from the population of their country (internal debt);

3) by borrowing from other countries or international financial organizations (external debt). The first way is called the issue or money way, and the second and third way is called the debt method of financing the state budget deficit. Consider the merits and demerits of each of the ways. Emission method of financing the deficit of the state budget. This method consists in the fact that the state (the Central Bank) increases the money supply, and etc. Puts into circulation additional money, with the help of which it covers excess of its expenses over incomes. Advantages of the issuing method of financing:

− Growth in the money supply is a factor in the increase in aggregate demand and, consequently, in output. The increase in the supply of money causes a decrease in the interest rate on the money market (a reduction in the price of the loan), which stimulates investment and ensures the growth of aggregate expenditures and aggregate output. This measure, thus, has a stimulating effect on the economy and can serve as a means of getting out of the state of recession.

− This is a measure that can be implemented quickly. The growth of the money supply occurs either when the Central Bank conducts operations on the open market and buys state securities and, paying to sellers (households and firms) the value of these securities, issues additional money (it can make such a purchase at any time and in any The required volume), or by direct emission of money (for any necessary amount).

Financing the deficit of the state budget at the expense of domestic debt. This method consists in the fact that the state issues securities (government bonds and treasury bills), sells them to the population (households and firms) and receives the funds used to finance the excess of public expenditure over revenues. Advantages of this method of financing:

− It does not lead to inflation, since the money supply does not change, i.e. This is a non-inflationary way of financing.

− This is a fairly rapid way, because the issue and placement (sale) of government securities can be secured quickly. The population in developed countries is happy to buy state securities, because they are highly liquid (they can be sold easily and quickly — it's «almost-money»), highly reliable (guaranteed by the state that enjoys trust) and are profitable enough (they pay interest).

References:

1. www.tradingeconomics.com website.