US budget deficit triples, may hit $US2tn

October 15, 2008

The US government posted a record budget deficit for 2008 as financial market strains slowed economic growth and spending climbed.

The shortfall widened to $US455 billion ($645 billion) in the fiscal year ended Sept. 30, compared with a $US162 billion deficit a year earlier and the previous high of $US413 billion in 2004, the Treasury Department said today in Washington. The gap was 3.2% of gross domestic product, up from 1.2% last year, the Treasury said. Last year's deficit represented the largest share of the economy since a 3.6% shortfall in 2004.

The excess of expenditures over receipts this year could get even worse. As the Treasury uses $US700 billion to rescue the financial system from the credit crisis, Morgan Stanley chief economist David Greenlaw predicts the shortfall may almost quadruple to about $US2 trillion.

``It's going to get worse before it gets better,'' said Richard Kogan, senior fellow at the Center on Budget and Policy Priorities in Washington. ``I wouldn't be a bit surprised if the deficit is hundreds of billions of dollars higher in 2009 than 2008.''

The final total for 2008 was higher than the Congressional Budget Office's Oct. 7 projection for a year-end $US438 billion deficit.

Total spending in 2008 rose 9.1% to $US2.98 trillion from a year earlier. Revenue decreased 1.2% to $US2.52 trillion.

For the month of September, the government posted a surplus of $US45.7 billion, less than half the surplus of $US112.9 billion the same month a year earlier, the Treasury said.

`Slower growth'

``This year's budget results reflect the ongoing housing correction, and the manifestations of that in strained capital markets and slower growth,'' Treasury Secretary Henry Paulson said in a statement.

Corporate income tax revenue fell 18% to $US304.3 billion for the year, reflecting the impact from the economic slowdown on businesses.

US military spending in 2008 rose 12.5% from the previous year to $US594.7 billion, according to the report. Spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, rose 4.2% to $US700.5 billion. Spending on Social Security totaled $US657.8 billion, up 5.8% from the previous fiscal year.

``The bipartisan stimulus bill and the slow economy are the primary reasons for the increase in deficit,'' Jim Nussle, director of the Office of Management and Budget, said in a statement today. ``This increase reinforces the need to adopt and maintain policies that promote economic growth and fiscal responsibility, including entitlement reform.''

Bloomberg News