Introduction to Revenue Deficit
When the government’s total revenue expenditure exceeds its total revenue receipts, that means the net income is less than the net expenditure, revenue deficit occurs. This deficit is seen when the actual amount of revenue or expenditure does not correspond with the budgeted revenue or expenditure.
The opposite of revenue deficit is revenue surplus, where the net income is more than net expenditure.
When there is a revenue deficit in a government or a business, it means that their income is not enough to keep them operating smoothly. In such a situation, the government or business will need to borrow money by loaning it or get money by selling the assets that they own.
Some other ways that the company can save money in case of a revenue deficit is by cutting costs on various levels. This involves cutting costs on machinery and labor. As for the government, it can compensate for the revenue deficit by raising taxes.
Know that revenue deficit is not the same as fiscal deficit, do not confuse them both. While revenue deficit means that the total income is less than the total expenditure, a fiscal deficit measures the difference between the actual income and the budgeted income.
How do you calculate revenue deficit?
The revenue revenue deficit is calculated by subtracting total revenue expenditure from total revenue receipts. If the fiscal deficit is constant, a higher revenue deficit means the government or business bears a higher load of repayment.
The revenue deficit is divided in two categories; tax revenue receipts and non-tax revenue receipts. Remember that a revenue deficit does not mean a loss of revenues, it simply shows the difference between the net income and net expenditure which can tell if the government or business can afford it’s basic needs and operations.
Disadvantages of revenue deficit
A large revenue deficit means the government or business bears a large repayment as they will need to borrow a significant amount of money to run smoothly. If the revenue deficit is not taken care of it affects the government’s credit listing.
