Measures of deficit

A budget is balanced if receipts equal expenditure, in surplus if receipts are more, and in deficit if expenditure is more. There are three measures of deficit:

• Revenue deficit = revenue expenditure − revenue receipts. It shows the government borrowing to pay for current spending (consumption): government dissaving.
• Fiscal deficit = total expenditure − revenue receipts − non-debt capital receipts. It equals the government's total borrowing. It can also be written as: revenue deficit + capital expenditure − non-debt capital receipts.
• Primary deficit = fiscal deficit − interest payments. It shows the imbalance of today's spending, leaving out interest on past loans.

Example (as % of GDP): total expenditure 16, revenue receipts 10, non-debt capital receipts 0.5, interest payments 3.5. Fiscal deficit = 16 − 10 − 0.5 = 5.5; primary deficit = 5.5 − 3.5 = 2.0.

The fiscal deficit is financed by borrowing, from the public, banks and abroad, which adds to the government's debt.