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Blog Posted in avatar   Michael F. van Breda's Blog

Balancing the (operating) budget

By Michael F. van Breda
Posted Aug 25, 2011 in Politics
All the talk about a balanced budget ignores the fact that the government is on a cash basis in which all expenditures are treated as outflows of the period. In regular for-profit accounting, the payment of a salary is treated as an expense while the acquisition of a building, say, is treated as an investment.
Government does not make this distinction. Were businesses to keep their books the way that the government does, a large number of them would be running a deficit.
Yes we desperately need a balanced budget but it needs to be a balanced operating budget. Anything else is nonsensical and shows a sad misunderstanding of government accounting.

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