"Budget neutral" refers to an approach to fiscal policy in which a program or project has no impact on the budget. The term is usually used in formulating government programs and involves incorporating a method of funding other than borrowing. The goal of budget neutrality is to avoid creating a spending deficit or adding to an existing deficit.
According to the International Institute for Sustainable Development, the fiscal policy associated with legislative initiatives can be based on spending, generating revenue or budget neutrality. There are several ways to achieve budget neutral funding. One strategy is to cover a program's costs by increasing revenues, usually via additional taxes. Alternatively, you can offset the costs by cutting spending in another budget area. A third alternative is to design a program to be self-funding. For example, an anti-pollution program could impose a fee on businesses for the use of toxic materials. When a business doesn't use these materials, or recycles them, it receives compensation paid for out of the fees collected. There is thus no impact on the government’s budget.