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Budget Surplus: Definition & Overview

Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Budget surpluses provide opportunities for those individuals and organizations that have them. In this lesson, you'll learn what a budget surplus is and some related concepts. You'll also have a chance to take a quiz after the lesson.

Definitions

A budget surplus is simply having more income than expenses during a specific period of time, such as a financial quarter or fiscal year. Individuals, companies and governments can all have budget surpluses. Let's take a step back and look at the concept of budgeting in more detail so we can put a surplus in its proper context.

A budget is just a document that itemizes anticipated income and expenses during a period of time and is often used for planning as it helps you determine what you probably will earn, what you must spend, and what you will do with the money left over. Budgeting is the process by which income and expenses are estimated for the purposes of developing a budget. While a budget surplus is income left over after expenses are paid during a specific period of time, a budget deficit exists when expenses exceed income during a specific period of time. Debt is the sum total of all deficits.

Uses for Budget Surpluses

How a budget surplus can be used depends, in part, on who has the budget surplus. Let's take a look at how governments, businesses and individuals may take advantage of a budget surplus.

A government has several different options when faced with a budget surplus. First, it may decide to lower taxes. Second, it can decide to start new programs or fund other programs better. For example, it may decide to grant money for scientific research, create new programs for the poor and underprivileged, make infrastructure improvements or increase defense spending. Finally, the government can use the surplus to pay down its debt.

A business will also have different options for a budget surplus. First, a business can expand its business activities through investing in current activities or expanding into new markets and products. It can also expand by acquiring other businesses. Second, a corporation may decide to buy back some of its stock. Third, it may pay out excess revenue as dividends to its owners. Fourth, it may decide to pay down any business debt it may have.

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