What is the financial balance?

The financial balance used in public finance statistics is calculated by subtracting public expenditure from public revenue. Revenue and expenditure are the funds received or spent on a cash basis within a specific period (excluding cross-period special funding operations and internal offsetting items). If the revenue exceeds the expenditure of public budgets, there is a financial surplus. If the expenditure is higher than the revenue, there is a financial deficit. The financial balance used in public finance statistics differs from the government deficit shown in national accounts because the latter is determined on the basis of other, internationally comparable concepts to show government finance in the context of the overall economy rather than by their cash relevance.
The financial balance basically shows the extent of the public budget deficits that have to be covered by borrowing on the credit market. In case of a negative financial balance it must be checked whether current revenue can be increased and/or loans must be taken up or expenditure must be cut. In case of a positive balance it must be checked whether the funds available can be used to repay debt, to create reserves, to reduce taxes or to increase expenditure.
As an indicator to assess the budgetary situation, the financial balance involves the shortcoming that biases can occur through one-time effects. Analysing the financial balances over several years (time series), however, allows to get information on the development of the budgetary situation.