US federal deficit in 2008 was record $455 bn

October 15th, 2008 - 8:33 am ICT by IANS  

Washington, Oct 15 (DPA) The US government’s deficit exceeded projections for the just-ended 2007-08 budget year, hitting a record $455 billion, federal officials announced late Tuesday.Treasury Secretary Henry Paulson and Jim Nussle, director of the Office of Management and Budget, issued a joint statement summarizing the government’s revenues and spending for the 12 months through September.

The deficit represents 3.2 percent of gross domestic product in the $14-trillion US economy.

The 2006-07 deficit was $161.5 billion, or about 1.2 percent of GDP.

The previous record deficit was $413 billion in 2004.

Total 2008 federal spending was $2.98 trillion, compared to $2.5 trillion in revenue. Spending grew at a rate of 9.1 percent from the previous year, the fastest increase since 1990.

“This year’s budget results reflect the ongoing housing correction and the manifestations of that in strained capital markets and slower growth,” Paulson said.

“We are taking aggressive actions to stabilize our financial markets and strengthen our financial institutions so they can finance economic growth. While it will take time to work through this period, we will overcome the current challenges facing our nation.”

Since the start of the 2009 budget year on Oct 1, the US Congress has passed a “rescue” package for the troubled banking and financial sector that could reach $700 billion, which could put the 2008 budget deficit well over $1 trillion. Next year’s deficit could dwarf the 1983 deficit of 6 percent of GDP, which is the highest since World War II, when the United States ran up huge deficits as measured by the size of the economy.

Another $250 billion is to spent buying stakes in major banks to inject cash into the financial system, the government announced Tuesday.

Both bail-out actions would see the government obtaining financial assets that might later be sold, creating an opportunity for at least some of the costs or even a profit to be recovered for taxpayers in the months and years to come.

A sharp economic slowdown tied to the ongoing financial crisis is likely to hurt federal tax revenues while increasing costs in social welfare programmes.

The swelling deficit reinforces the need to “pursue policies that promote economic growth and fiscal responsibility,” Paulson said.

Nussle attributed the spike in the 2008 deficit to the slowing economy and economic stimulus legislation passed in February, which cost $152 billion this year alone, much of it through tax credit checks sent to most individual taxpayers.

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