Reasons as to why the government may deliberately plan for a surplus budget

Reasons as to why the government may deliberately plan for a surplus budget

1. To check on excessive aggregate demand and to control inflation in the economy through reduced excessive money supply.
2. To pay off the government debts contracted in the past using the excess revenue.
3. To improve on the balance of payment position of the country. The excess revenue can be used for investments to produce goods and services for export.
4. To reduce on the huge burden of government expenditure.
5. To increase on the economic base of the country through the accumulated government reserves

Negative effects of a Surplus budget

1. It increases the tax burden on the citizens. This is true when the government tries to raise more revenue through taxation. ,
2. It leads to unemployment due to reduced aggregate demand.
3. It leads to political resistance as a result of high tax burden imposed on the tax payers.
4. It discourages savings and investment in case of increased taxation on investors.