What Is a Budget Surplus?

A budget surplus occurs when income exceeds expenditures. The term often refers to
a government's financial state, as individuals have "savings" rather than a "budget
surplus." A surplus is an indication that a government's finances are being effectively
managed.

Understanding Budget Surplus

A budget surplus might be used to make a purchase, pay off debt or save for the
future. A city government with a budget surplus may use the money to make
improvements, such as revitalizing a decaying park or downtown area.

KEY TAKEAWAYS

 A budget surplus is when income exceeds expenditures.

 The term "budget surplus" is used in reference to a government's financial
state.

When expenditures exceed income, the outcome is a budget deficit. When

deficits occur, money is borrowed and interest is paid, similar to an individual
spending more than they earn and paying interest on a credit card balance.
A balanced budget exists when expenditures equal income.

Overview
Economic and spending changes generate a surplus. A budget surplus is one indicator
of a healthy economy. However, it is not necessary for a government to maintain a
surplus. The U.S. has rarely run a budget surplus, and has experienced long periods of
economic growth while running a budget deficit. 2   1

A surplus implies the government has extra funds. These funds can be allocated
toward public debt, which reduces interest rates and helps the economy. A budget
surplus can be used to reduce taxes, start new programs or fund existing programs
such as Social Security or Medicare. A budget surplus can occur when growth in
revenue exceeds growth in expenditures, or following a reduction in costs or spending
or both. An increase in taxes can also result in a surplus.