US deficit narrows to smallest level since 2007

James Nickerson
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The deficit has fallen to 2.5 per cent of GDP (Source: Getty)

The United States budget deficit has fallen to 2.5 per cent of gross domestic product, narrowing to its smallest level since 2007.

The government's deficit, which is a measure of how much the government has spent against what it raised in taxes, shrunk to $439bn (£283.6bn) in the 12 months to the end of September, from $483bn in the same period a year ago, the Treasury Department said. Last years figure gave a deficit-to-GDP ratio of 2.8 per cent.

The amount the government raised in receipts rose by eight per cent from a year ago, to $3.25 trillion, which the Treasury said was a result of "a stronger economy", as wage growth picked up and increased income tax receipts. Businesses also paid more tax as profits increased.

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Government spending meanwhile increased by five per cent to $3.69 trillion, as social security, Medicare and Medicaid - the US's three largest entitlement programmes - were highlighted as key contributors, alongside defence spending.

The economic data comes on the same day that Treasury Secretary Jack Lew - George Osborne's American counterpart - told Congress that the US could exhaust its borrowing capacity by November 3, two days earlier than was previously estimated.

Lew said in a letter: "At that point, we expect Treasury would be left with less than $30bn to meet all of the nation's commitments — an amount far short of net expenditures on certain days, which can be as high as $60bn."

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As the US finances much of its spending from debt, the feat is that a failure to increase the "debt ceiling" could trigger a default. However, for many Republicans in the US who want to see government spending scaled back in the long-term before accepting increases in government borrowing, the prospect of raising the "debt ceiling" is controversial.

September's monthly budget was a surplus of $91bn, with receipts totaling $365bn and outlays worth $274bn.