US budget deficit hits record high

The US government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.

The Treasury Department said Wednesday that the February deficit totaled $220.9 ($NZ315) billion, 14 per cent  higher than the previous record set in February of last year.

The deficit through the first five months of this budget year totals US$651.6 billion, 10.5 per cent  higher than a year ago.

The Obama administration is projecting that the deficit for the 2010 budget year will hit an all-time high of US$1.56 trillion, surpassing last year's US$1.4 trillion total.

The administration is forecasting that the deficit will remain above US$1 trillion in 2011, giving the country thrree straight years of US$1 trillion-plus deficits.

The administration says the huge deficits are necessary to get the country out of the deepest recession since the 1930s. But Republicans have attacked the stimulus spending as wasteful and a failure at the primary objective of lowering unemployment.

The administration defends the economic stimulus bill that Congress passed in February 2009 with a pricetag at the time of US$787 billion as the right medicine to get the economy back on its feet.

President Barack Obama has said even more is needed to battle an unemployment rate that remained stuck in February at 9.7 per cent .

The White House says that job creation will remain a top priority, hoping to convince voters that Obama did not spend too much time during his first year in office trying to get Congress to pass health care reform.

The government's monthly budget report showed the record US$220.9 billion deficit for February reflected outlays of US$328.4 billion and revenues of US$107.5 billion.

The February receipts marked the first time that revenues are up compared with the same month a year ago since April 2008.

Revenues had fallen for 21 straight months as the recession cut into both individual and corporate income tax payments.

Deficits normally shoot up in February because it is a month when the government makes large refund payments to individuals and corporations as part of the tax filing process.

Those payments were boosted this year by various tax credits that were expanded or added as part of the government's stimulus efforts including the "Making Work Pay'' tax credit and the first-time home buyers tax credit.

Through the first five months of the budget year, government revenues totaled US$800.5 billion, down 7 per cent  from a year ago, while outlays totaled US$1.45 trillion, up a slight 0.1 per cent  from a year ago.

The deficit of US$651.6 billion through February is up by 10.5 per cent  from the US$589.8 billion deficit run up during the first five months of the 2009 budget year.

The government's budget year begins on October 1.

The budget that Obama sent to Congress in February projects that the deficits over the next decade will total US$8.53 trillion.

But the Congressional Budget Office last week put the 10-year total even higher at US$9.8 trillion. Part of the reason for the US$1.2 trillion difference is that the CBO is projecting slower economic growth and thus less tax revenues than the administration over the next decade.

The administration has maintained that the country must run large budget deficits until the economy has begun to grow at a sustainable pace that is bringing the unemployment rate down.

Only then, the administration says, should the government focus on getting control of the deficits.

Obama has created by executive order an 18-member fiscal reform commission that has been charged with coming up with a plan to shrink the deficit to 3 per cent  of the economy within five years.

The plan is scheduled to be unveiled in December, after the midterm congressional elections.

With the economy so weak, the interest rates that the government has to finance the flood of red ink have remained low.

However, economists are worried that the favorable outlook on interest rates could change quickly if investors, including foreign investors, start to worry about the government's commitment to restraining future deficits.

China is the largest foreign holder of US Treasury securities.

Through the first five months of this budget year, net interest payments totaled US$86.5 billion, up 15.3 per cent  from a year ago.

In its report last week, the CBO predicted that the government debt held by investors would climb from US$7.5 trillion at the end of last year to US$20.3 trillion in 2020.

CBO forecast that interest payments would more than quadruple from a projected US$209 billion this year to US$916 billion annually by the end of the decade.

- AP