Tax takings also falling
THE BAIL OUT OF BANKS in the United States has started to affect the country’s already big budget deficit at a time when tax income is disappointing. The US government recorded a monthly budget deficit of US$237,2bn in October – its largest monthly deficit ever recorded.
The high October deficit was mainly due to the $115bn disbursed under the Troubled Asset Relief Programme (Tarp). Stanlib economist Kevin Lings says it’s unfortunate that, during the month, US tax revenue continued to slump and is clearly trending lower.
Lings says other areas of US expenditure outside of the Tarp programme also increased noticeably during the month. For example, social security spending was up 13% compared with last year, while defence spending rose 16% year-on-year.
Lings says the deficit will rise dramatically in the months ahead as current trends continue, further intensified by a stimulus package. Lings says the annual deficit could easily reach $1 trillion, or a record 7% of gross domestic product. “That would be… well in excess of accepted international guidelines of 3% of GDP,” Lings says.