By Agency Reporter

Thursday, 23 Dec 2010

WASHINGTON: The United States government fell deeper into the red in fiscal 2010 with net liabilities swelling more than $2tn as commitments on government debt and federal benefits rose, according to a US Treasury official.

Reuters reported on Wednesday that the Financial Report of the US, which applied corporate-style accrual accounting methods to Washington, showed that the government‘s liabilities exceeded assets by $13.473tn. That compared with a $11.456tn gap a year earlier.

Unlike the normal measurement of government intake of receipts against cash outlays, accrual accounting measures costs such as interest on the debt and federal benefits payable when they are incurred, not when funds are actually disbursed.

The report was instituted under former Treasury Secretary, Mr. Paul O‘Neill, the first Treasury secretary in the George Bush administration, to illustrate the mounting liabilities of government entitlement programmes like Medicare, Medicaid and Social Security.

The government‘s net operating cost, or deficit, in the report grew to $2.080tn for the year ended September 30 from $1.253tn the prior year as spending and liabilities increased for social programmes. Actual and anticipated revenues were roughly unchanged.

The cash budget deficit narrowed in fiscal 2010 to $1.294tn from $1.417tn in 2009. But the $858bn tax cut extension package enacted last week was expected to keep the deficit well above the $1tn mark for another year.

The latest Treasury report should fuel debate in Congress over spending cuts next year as a new Republican majority in the House of Representatives takes office.

The US Senate on Tuesday approved a compromise bill to fund the government until March 4, 2011. After that, Republicans will have the chance to push through dramatic budget cuts.

”Today, we must balance our efforts to accelerate economic recovery and job growth in the near term with continued efforts to address the challenges posed by the long-term deficit outlook,” Treasury Secretary, Mr. Timothy Geithner, said in a letter accompanying the report. ”The administration‘s top priority remains restoring good jobs to American workers and accelerating the pace of economic recovery.”

Among key differences between the operating deficit and the cash deficit were sharp increases in costs accrued for veterans‘ compensation, government and military employee benefits and anticipated losses at mortgage finance giants Fannie Mae and Freddie Mac.

The biggest increase in net liabilities in fiscal 2010 stemmed from a $1.477tn increase in federal debt repayment and interest obligations, largely to finance programmes to stabilise the economy and pull it out of recession.

The federal balance sheet liabilities do not include long-term projections for social programmes such as Medicare, Medicaid and Social Security, but these showed a positive improvement.

Source: Punch