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Loss of Supply occurs where a government in a parliamentary democracy is denied a supply of treasury or exchequer funds, by whichever house or houses of parliament or head of state is constitutionally entitled to grant and deny supply. A defeat on a budgetary vote is one such way by which supply can be denied. Loss of supply is interpreted as indicating a loss of confidence in the government.

When a Loss of Supply occurs, a prime minister is generally required either by constitutional convention or by explicit constitutional instruction to:

• immediately resign (allowing the majority blocking Supply to form a government) or
• seek a parliamentary dissolution (so allowing the electorate to pass judgment on the issue).

Some constitutions however do not allow the option of dissolution, instead requiring a resignation.

A similar deadlock can occur within presidential systems where it is also known as a budget crisis. In contrast to parliamentary systems, the failure of the legislature to authorize spending may not in some circumstances result in new elections because legislatures in such systems operate to fixed terms and so cannot be dissolved ahead of schedule, which can result in a prolonged crisis.

A deadlock between a head of state and the legislative body can give rise and cause for a head of state to prematurely dismiss the elected government requiring them to seek re-election. If a government maintains the support of a majority of legislators or the elected parliamentary representatives the blocking of supply by a head of state would be seen as an abuse of authority and power. Many Western countries have removed or restricted the right of a head of state to block supply or veto government budget unless there is overwhelming justification and cause for such action. If a government maintains the support of the elected parliament then the budget must be approved within a nominated period or entitlement and authority for the approval of the budget is determined by a statutory majority of the parliament.

• In 1909, the UK House of Lords voted against the "People's Budget," precipitating two general elections and the Parliament Act of 1911, which limited the power of the Lords.

• In the Australian constitutional crisis of 1975, the Australian Senate refused to vote on a bill which authorized supply for the government of Prime Minister Gough Whitlam, until Whitlam called an election for the House of Representatives. He was subsequently dismissed by the Governor-General of Australia, Sir John Kerr, having refused either to resign or request a dissolution.

• The defeat of Garret Fitzgerald's government in a budget vote in Dáil Éireann in the Republic of Ireland in 1982. Fitzgerald immediately sought and was granted a Dáil dissolution.¹

¹ Article 28.2.2. of Bunreacht na hÉireann (the 1937 Irish constitution) states that

The Taoiseach shall resign from office upon his ceasing to retain the support of a majority in Dáil Éireann unless on his advice the President dissolves Dáil Éireann and on the reassembly of Dáil Éireann after the dissolution the Taoiseach secures the support of a majority in Dáil Éireann.

In tandem, Article 13.2.2. states that

The President may in absolute discretion refuse to dissolve Dáil Éireann on the advice of a Taoiseach who has ceased to retain the support of a majority in Dáil Éireann.

In such an eventuality the Taoiseach, in accordance with Article 28.2.2., must resign. Loss of Supply is taken as unambiguous evidence that a Taoiseach has ceased "to retain the support of a majority in Dáil Éireann," as is defeat of a Motion of Confidence, passage of a Motion of No Confidence, defeat of a major Bill, or any measure a prime minister declares to be of such importance as to in effect amount to a confidence issue.