Fiscal Deficit vs Budget Deficit Key Difference

Fiscal deficit vs budget deficit refers to two closely related but distinct economic concepts. A fiscal deficit occurs when a government’s total expenditures exceed its income from taxes and other receipts, excluding borrowings, indicating how much it may need to borrow. A budget deficit happens when total government spending exceeds total revenues from all sources, usually signalling a shortfall that is often met by borrowing. This article explains fiscal deficit vs budget deficit by explaining its key differences, formula and more. 

Difference Between Budget Deficit and Fiscal Deficit

Here’s an easy-to-understand comparison table that highlights the key difference between budget deficit and fiscal deficit: 

Formula for Calculating Fiscal Deficit and Budget Deficit 

Below are the formula’s for two commonly discussed deficit that helps measure governments financial health: 

Fiscal Deficit Formula: 

Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings) 

Example: 

If a government’s total expenditure is ₹30 lakh crore and total revenue (excluding borrowings) is ₹25 lakh crore, the fiscal deficit would be ₹5 lakh crore. 

Budget Deficit Formula: 

Budget Deficit = Total Government Expenditure − Total Government Revenue (tax + non-tax) 

Example: 

Assume that the total expenditure is of ₹30 lakh crore with the total revenue of ₹26 lakh crore then the budget deficit would be ₹4 lakh crore. 

Budget Deficit and Fiscal Deficit in Developing Economies 

In many developing economies, both deficits often occur when governments spend more to support growth and infrastructure: 

• Growth Support: Deficits can be used to finance the spending needs of the nation if the tax revenue is not strong or are limited, particularly in the emerging markets. 
• External Shocks & Structural Problems: In the developing countries, fiscal imbalances can be significant due to reasons such as commodity price volatility, limited revenue bases, and limited fiscal capacity. 
• Debt Risk: Existing deficits can contribute to rising public debt, increasing costs for debt service and affecting fiscal sustainability. 

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Conclusion 

Knowledge of the distinction between budget deficit and fiscal deficit is helpful to understand the interpretation of government finance statements. The budget deficit reveals the difference between expenditures and earnings, whereas fiscal deficit specifies the requirement of borrowing after excluding borrowed funds. In the case of the users who are tracking markets through an online trading app, awareness of such matters could give valuable information on economic indicators that affect the markets.