Deficit

The deficit exists when the balance of an organization or person has a negative balance, that is, it is in deficit. In this scenario, the income is not enough to cover the expenses, or in other words, the capacity to collect income is less than the charges that are available.

Deficit: Income

In general, this term is associated with the economy and financial economic situation of an organization or public administration in a certain period of time, generally a year, quarter or month. Its most widespread application is associated with the commercial world of companies and States, but there are many types of deficits.

The term deficit is regularly used for the public accounts of an administration. For this reason, an economic deficit scenario is usually considered negative, since administration expenses cannot be covered. If a government is unable to reduce its debts because they do not lend it more money or it no longer has reserves to meet its payments, it can only correct the deficit through its indebtedness with the central bank of that country.

However, when there is a sustained form of financing the deficit does not have to be a bad thing. Many countries have deficits but maintain financing formulas that allow them to invest in a high quality Welfare State.

The opposite situation is the surplus, in which income is greater than income.

Types of deficit according to accounting

Its most widespread application is associated with the commercial world of companies and States, but there are many types of deficits. These are the main ones:

• Fiscal deficit: It is related to the public administration. It originates when a public administration is unable to raise enough money to meet its expenses. Also, the fiscal deficit is related to the money that one administration receives from another depending on what the latter contributes (between a region and a State, for example).
  • Public deficit: It refers to the set of all public administrations in a country. It is associated with the national accounts of a country.
  • Budget deficit: It refers to the fiscal surplus foreseen by the Government when making the budgets for the following year.
  • Primary deficit: It is the fiscal deficit without taking into account the previous financing costs, that is, without taking into account the interests of the debt acquired previously. Therefore, it is easier for it to result in a surplus than the fiscal deficit, which in these cases is called a surplus or total deficit.
• Foreign deficit: It is the difference between income and expenses that a country has with respect to abroad. There may be a deficit in any account of the balance of payments. These are the most important:
  • Trade deficit: When the balance of a country’s imports is higher than that of exports.
  • Capital deficit: Greater investments abroad with national money than foreign investments in the country.
  • Financial deficit: When citizens of the interior of the country send a greater number of remittances than those received.

Types of deficit depending on the situation

An important element to take into account when making decisions is whether the surplus is of a temporary or structural nature:

• Structural deficit: It originates constantly and independently of the influence of an economic period. It is very important to try to correct it.
  • Discretionary deficit: It is conditioned by the economic policies of the Government.
  • Trend deficit: It is caused by normal and automatic structural situations, such as population growth.
• Short-term or cyclical deficit: This is a temporary situation caused by economic periods. It will probably not be necessary to take any action in relation to the cost and financing structure of an administration.

Other types of deficit:

• Private deficit : It occurs when a company or family is not able to generate enough income to cover its financial expenses due to excess indebtedness. Sometimes it is also considered for all families and companies in a country.
• Food deficit: Food shortages.