In the budget of local government entities comparing the streams of income and expenditure shall be performed at the end of budgetary period. Balance in the budget is determined as surplus or deficit.
Budget surplus is one of the basic structural concepts related to the issue of the budget and public finances. Planned (or actual) budgetary surplus is a positive financial result that appears when the budget revenues are higher than the expenditure budget. In turn in case budget revenue are lower than expenditure, there is a deficit.
The planned budget surplus is not always good for state or local government entities. Sometimes, in fact it is the result of planning irregularities and therefore the law oblige the authorities of government entities to determine the destination of the planned surplus. The permanent collection of financial surpluses causes excessive burden of taxes on society.
The budgetary surplus of local government entities may appear as a result of:
- delayed execution of planned infrastructure investments
- raise of additional revenue
- savings in expenditure (while performing all planned tasks)
Where does budgetary surplus come from?
Budgetary surplus is generated when a local government entity's revenues exceed its expenditures. This can happen in a number of ways, including:
- Increased revenues: The local government entity may experience an increase in revenue from various sources, such as taxes, grants, and fees. This increase in revenue can lead to a surplus in the budget.
- Delayed expenditure: The local government entity may delay the execution of planned infrastructure investments or other expenses. This can lead to a surplus in the budget if the revenues are still coming in as expected.
- Cost savings: The local government entity may implement cost-saving measures, such as reducing staff or cutting back on non-essential expenses. This can lead to a surplus in the budget if the savings are greater than the reductions in revenue.
- Efficient Financial Management: The local government entity may have an efficient financial management system in place which can help them keep track of their expenses, manage their revenues and plan their future investments. This can lead to a surplus in the budget.
- Economic growth: A local government entity may experience an increase in economic activity, leading to an increase in revenues from taxes and other sources. This can lead to a surplus in the budget.
It's important to note that a surplus does not always indicate good financial management. Sometimes, it can be a result of planning irregularities or other factors that do not reflect the well-being of the local government entity, so it's important to carefully analyze the underlying causes of a surplus before making any decisions.
- Artis, M. J., & Buti, M. (2000). Close‐to‐Balance or in Surplus: A Policy‐Maker's Guide to the Implementation of the Stability and Growth Pact. JCMS: Journal of Common Market Studies, 38(4), 563-591.