Welcome Back to Basics. 

The balance of a government’s tax revenues (plus any proceeds from asset sales) minus government spending is called fiscal balance. This is also called as Government Budget Balance, Public budget balance, or Public fiscal balance (for convenient purpose let us keep as fiscal balance). When the balance is positive then the government has a fiscal surplus, if negative then fiscal deficit.

The fiscal balance is further classified into Primary balance and Structural Balance (also known as cyclically-adjusted balance).

Overall fiscal balance is a significant indicator to assess fiscal policy as a measure. Where, we all know that it is important to handle fiscal policy with caution. Overall fiscal balance shows the effects of fiscal policy on the aggregate demand, but it is a deficient indicator which shows the impact of fiscal policy for other policy variables like growth, monetary stance, etc.…

What is Primary Balance?

The primary balance is government budget balance before interest payments. In simple terms fiscal balance minus interest payments gives us primary balance.

What is Structural Balance?

Structural balances are an extension of cyclically adjusted balances, correcting for a broader range of factors such as asset and commodity prices and output composition effects.

The need for calculation of structural balance: 

In order to assess the fiscal sustainability the adjustment of fiscal balances for the output cycle is really crucial and needed. There is no single method is considered as the appropriate adjustment method for adjusting fiscal balance. The appropriate adjustment method depends on country specific factors, data availability, fiscal regime and the economic structure of the country.

The negative signs of the above table is due to  post-pandemic effects. As many economies are still struggling to overcome the effect of the pandemic. The Government’s are trying their best to boost the demand and to control inflation in their respective economy. 

Note:  In many European countries, they have set an independent body to carry out the study of fiscal balance and they are called Fiscal councils. In India it is not easy to calculate the structural balance due to multiple factors mentioned above.