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US budget gap triples to record $ 3.1 billion in virus relief

Washington: The U.S. budget deficit more than tripled to a record $ 3.1 billion in the last fiscal year for the government’s massive spending aimed at mitigating the coronavirus pandemic.

The increase brought the deficit as a share of gross domestic product to 16% in the year ended September, the largest since 1945, according to a report from the Treasury Department on Friday. At the end of the financial crisis in 2009, the ratio was almost 10% before slowly declining through 2015.

Investors handed the government ultra-low borrowing costs to finance the spending, which led to a 9% drop in federal interest payments during the year. But the national debt is now greater than the size of the economy, and it could be nearly double GDP by 2050, as an aging population places more demands on social security and Medicare, according to the Congressional Budget Office.

The risk is that rising debt could cause inflation in the long run and deter investors if the market becomes too saturated. Federal Reserve Chairman Jerome Powell and other officials say the debt path should finally be addressed, but now is not the time to worry as unemployment remains high and the pandemic has shattered many businesses, prompting further support for the economy fair.

While the central bank is lowering the benchmark interest rate to almost zero in March and expects borrowing costs to remain very low for years to come, lawmakers remain trapped over additional fiscal aid ahead of the November 3 election.

The report showed that federal spending in fiscal 2020 rose 47.3% to $ 6.55 billion, driven by increased spending on unemployment benefits and small businesses approved by President Donald Trump and Congress. Government revenue fell by 1.2% as income from individual and corporate income taxes fell.

Underlining the massive fiscal aid this year, the Treasury report shows $ 275 billion in spending on federal additional unemployment benefits, which includes the now-expired weekly unemployment payments of $ 600. Expenditure on state unemployment benefits amounted to almost $ 196 billion during the financial year.

Spending on national defense went from the second largest expenditure in fiscal 2019 to the fifth in 2020, as spending caused by pandemic resulted in greater spending on income security, health and Medicare.

Source: Gulf News

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