When a government's tax revenues are insufficient to pay for a given level of state spending then a nation must borrow to make up the difference, this is a budget deficit. Governments often find that they have to borrow to finance their spending
Causes of a rising budget (fiscal Deficit)
Not all countries and groups of countries run budget deficits, there are many both from the richer advanced groupings and fast-growing developing nations who have been running budget surpluses in recent years.
Fiscal balances for selected groupings of countries
(-) Indicates a budget deficit, a +ve value shows a budget surplus
|Country Group Name||2008||2009||2010||2011||2012|
|Major advanced economies (G7)||-4.5||-10.0||-8.7||-7.7||-6.8|
|Latin America and the Caribbean||-0.9||-3.9||-3.0||-2.6||-2.3|
|Emerging and developing economies||1.0||-4.0||-2.8||-1.1||-1.0|
|Commonwealth of Independent States||4.2||-5.1||-2.6||2.0||0.9|
|Newly industrialized Asian economies||1.0||-1.1||1.1||1.6||1.0|
|Middle East and North Africa||13.4||-0.6||2.0||6.1||6.9|
|Source: IMF World Economic Outlook, April 2012|
Fiscal austerity under the 2010-2015 Coalition Government
The UK coalition government has a deficit-reduction policy with the emphasis on cutting government spending in some areas in real terms and a series of direct and indirect tax increases:
Key policies for deficit reduction:
Some taxes have been cut
The UK government also helped by lower interest rates on newly issued debt. 10 year bond yields fell to a record low of 1.4% in January 2015.
New fiscal rule (July 2015 Budget)
The government’s fiscal rules are to be revised to include a target for a budget surplus by 2019/20 and for all subsequent years when in ‘normal times’. The economy will be viewed as being in ‘normal times’ if real annual growth is above 1%.