A government budget lists the money the government expects to receive (revenue) and the money it plans to spend (expenditure). Compare the two totals: if spending is greater, there is a deficit, and if revenue is greater, there is a surplus.
This skill opens public finance and economic instruments and returns in every later lesson, because tax and spending changes are described against a budget like this one.
What is in a budget?
Revenue mostly comes from taxes, grouped by type. Spending is grouped by purpose, such as health, education and transport. A third line, interest on debt, is spending too, because the government must pay for what it has borrowed earlier.
Two checks make a table easier to read. First, add each side yourself so you know the totals are right. Second, notice the units, such as “MD million”, because a share of a total needs both numbers in the same unit.
How do you find the balance and the shares?
- Add the revenue lines to get total revenue.
- Add the spending lines to get total spending.
- Subtract: balance = revenue − spending. A negative answer is a deficit, a positive one is a surplus.
- For a share, divide the item by the correct total and multiply by 100. Use spending as the base for a spending share, and revenue as the base for a revenue share.
Worked example
The fictional economy of Marlow publishes this budget, in MD million.
| Revenue | MD m | Spending | MD m |
|---|---|---|---|
| Income tax | 40 | Health | 30 |
| Sales tax | 30 | Education | 28 |
| Company tax | 20 | Transport | 20 |
| Other receipts | 10 | Defence | 10 |
| Interest on debt | 7 | ||
| Other services | 15 |
Step 1, revenue: 40 + 30 + 20 + 10 = 100.
Step 2, spending: 30 + 28 + 20 + 10 + 7 + 15 = 110.
Step 3, balance: 100 − 110 = −10, so there is a deficit of MD 10 million.
Step 4, a share: health is 30 of the 110 spent, so 30 ÷ 110 × 100 = 27.3% (to one decimal place).
Step 5, deficit compared with revenue: 10 ÷ 100 × 100 = 10%.
Notice that each answer names its base. “27.3% of spending” and “10% of revenue” are different statements, and the question decides which one you need.
The mistake to watch for
A common slip is to use the wrong base for a share.
Mistaken answer: Health is 30% of the budget, because 30 ÷ 100 × 100 = 30%.
The student divided by revenue, 100, instead of by spending, 110.
The correction is to ask “share of what?” before dividing. A spending item is a share of total spending. Because Marlow spends more than it receives, the two totals differ, and using the wrong one changes the answer.
Check yourself
Try these without a calculator, then open each answer.
1. Revenue is MD 80 million and spending is MD 72 million. State the balance.
Show answer
80 − 72 = 8, so there is a surplus of MD 8 million.
2. In a budget with total spending of MD 120 million, MD 18 million goes to transport. What share of spending is transport?
Show answer
18 ÷ 120 × 100 = 15% of spending.
3. A fictional country has revenue of MD 150 million and spending of MD 165 million. Find the deficit and write it as a percentage of revenue.
Show answer
Deficit = 165 − 150 = MD 15 million. As a share of revenue: 15 ÷ 150 × 100 = 10%.
Where this leads next
Once reading a budget feels automatic, move on to distinguishing a direct from an indirect tax, then test the whole module with the public finance practice set. The percentage-base explorer is useful for checking which amount a percentage belongs to.
Some students follow each step here but still choose the wrong base under exam pressure. That is the kind of pattern our teachers look for in online one-to-one Economics tuition.