A balanced budget amendment is a constitutional rule requiring that a state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.
Balanced-budget provisions have been added to the constitutions of Germany, Hong Kong, Italy, Poland, Slovenia, Spain and Switzerland, among others, as well as to the constitutions of most U.S. states. In the United States, the Republican Party has advocated for the introduction of a balanced budget amendment to the United States Constitution.
Balanced budget amendments are defended with arguments that they reduce deficit spending and constrain politicians from making irresponsible short-term spending decisions when they are in office. Research shows that balanced budget amendments lead to greater fiscal discipline. However, there is substantial agreement among economists that strict annual balanced budget amendments have harmful near-term economic effects. In times of recession, deficit spending has significant benefits, whereas spending cuts by governments aggravate and lengthen recessions. To prevent that, most balanced-budget provisions make an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority vote.
Europe
Austria
In November 2011, the Austrian coalition government tried to amend its constitution and introduce a German style Schuldenbremse ("debt brake"). This would have forced the government to reduce its debt level to 60% of gross domestic product (GDP) by 2020. However, the government failed to gain a two-thirds majority in support of the constitutional amendment. Another attempt was made in October 2019, which was also unsuccessful.
Denmark
Local and regional authorities in Denmark are not allowed to run deficits and must always balance their budgets. There is no such rule for the national government, which has no limits on debt beyond the common rules of the European Union. Danish debt is very low in international comparison and stands at 33% of GDP in 2019.
France
Article 34 of the Constitution was amended in 2008 to include the objective of balancing the public sector accounts. In 2012, France passed a new law (2012-1403), creating the independent High Council of Public Finances, giving it the responsibility to report on the sustainability and deviation from planned targets of public spending.
Germany
In 2009, Germany's constitution was amended to introduce the Schuldenbremse ("debt brake"), a balanced budget provision. This applies to both the federal government and the Länder (German states). From 2016 onwards, the federal government was forbidden to run a structural deficit of more than 0.35% of GDP. Since 2020, the states have not been permitted to run any structural deficit at all. The Basic Law permits an exception to be made for emergencies such as a natural disaster or severe economic crisis.
Italy
In 2011, Italian Prime Minister Silvio Berlusconi promised to balance the budget by 2013, and a balanced budget amendment to the Constitution of Italy was added in 2012 with an overwhelming parliamentary majority, under the following Monti government. Under the amended Constitution, deficit spending can still take place in the event of emergencies, but only if authorized by a majority of the entire membership in both houses of Parliament. In practice, the term "emergency" has been loosely interpreted, and Parliament has always authorized the borrowing of new debt, and as such Italy hasn't ever had an actual balanced budget.
Poland
Poland's constitution (adopted in 1997) caps the public debt at 60% of GDP – the government cannot take on any financial obligations that would cause that limit to be exceeded. To ensure this level is never breached, Poland has a self-imposed debt threshold of 55% of GDP, and the government must take action to balance the budget once this level is exceeded.
Slovenia
In 2013, the Slovenian parliament approved a balanced budget amendment to the constitution that came into force in 2015.
Spain
In 2011, the Spanish Parliament proposed a law amending the Spanish Constitution to require a balanced budget at both the national and regional level by 2020. The law states that public debt cannot exceed 60% of GDP, though exceptions would be made in case of a natural catastrophe, economic recession, or other emergencies. The changes will also require the government to stick to EU annual deficit limits of 3% of GDP.