A budget deficit occurs when a government's expenditure is greater than its revenue.
In the European Union, Member States which are part of the euro area are required to keep their budget deficits below 3 % of gross domestic product to promote economic stability and sustainable public finances.
Under the terms of the European Union’s Stability and Growth Pact (SGP), Member States pledged to keep their deficits and debt below certain limits: a Member State’s government deficit may not exceed -3 % of its gross domestic product (GDP) in order to promote economic stability and sustainable public finances.
The relevant national accounts' balancing item is net lending (+) and net borrowing (-).
Net lending (+)/ net borrowing (-)
= Government surplus / deficit (net lending/ borrowing under EDP)
= gross saving (defined as gross disposable income less final consumption expenditure) less net capital transfers less gross acquisitions less disposals of non-financial assets
= (conceptually) net acquisition of financial assets less net incurrence of liabilities.