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Repaying the deficit
The higher the deficit, the more money of
a government’s budget is required in order
to pay it off. Governments with a surplus
can give more to their debt payments.How it works
Governments will often want to spend more than they
earn in taxes. This may happen during a recession,
when there is higher unemployment and therefore
lower tax revenues. The gap between government
tax revenue and what it spends is called the deficit.
Governments borrow in order to cover the deficit,maintain spending, and continue to provide services
with the aim that debts will eventually be repaid with
tax revenue. Most governments run a deficit from time
to time, and may run one most of the time. If debts
can be repaid, and interest payments are not large,
this is not a problem, but there is a risk of default
when repayment cannot keep pace with borrowing.Repayment
Any debt that a government takes on
must eventually be repaid, along with
interest on that debt. A certain level
of debt repayment must always be
maintained by the government
to avoid default or excess
interest incurred on
that debt.Government default
If a government fails or refuses to pay back a debt in full
it is said to have defaulted. This means that it is unable
to keep up repayments on some of the debt it owes.DANGER
OF DEFAULT“A national
debt, if it is
not excessive,
will be to us
a national
blessing”
Alexander Hamilton, first US
Secretary of the TreasuryGOVERNMENT FINANCE AND PUBLIC MONEY
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