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US govt reports US$116.5 billion surplus in June

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WASHINGTON—The federal government yesterday reported a rare surplus of US$116.5 billion in June, the largest for a single month in five years. The gain kept the US on track for its lowest annual deficit in five years. The surplus was due in part to US$66.3 billion in dividend payments from Fannie Mae and Freddie Mac.

The mortgage giants were taken over by the government at the height of the 2008 financial crisis and are now repaying taxpayers for the support they received. Through the first eight months of the budget year, the deficit has totalled US$509.8 billion, according to the Treasury. That's US$394.4 billion lower than the same period last year.

The Congressional Budget Office forecasts the annual deficit will be US$670 billion when the budget year ends on September 30. If correct, that would be well below last year’s deficit of US$1.09 trillion and the lowest since President Barack Obama took office. It would still be the fifth-largest deficit in US history. 

The Obama administration also estimates a lower annual deficit, although it projects a slightly higher figure of US$759 billion. Steady economic growth and higher tax rates have boosted the government’s tax revenue this year. At the same time, government spending has barely increased. The dividend payments from Fannie and Freddie have also helped. The federal deficit represents the annual difference between the government’s spending and the tax revenues it takes in. Each deficit contributes to the national debt, currently US$16.7 trillion. 

The improving deficit picture has taken pressure off negotiations to raise the federal borrowing limit, although that battle is likely to resurface in the fall. Obama has remained at odds with Republicans over cutting benefit programmes and imposing further tax increases. The deficit reached a record US$1.41 trillion in budget year 2009, which began four months before Obama took office.

The Obama administration was forced to deal with a severe economic downturn that reduced revenues and boosted government spending in such areas as unemployment benefits and food stamps. The government also had to allocate billions of dollars to stabilise the financial system. The budget gaps in the next three years were slightly lower as a gradually strengthening economy generated more tax revenue. 

President George W Bush also ran large deficits through most of his two terms in office after he won approval for broad tax cuts and launched wars in Afghanistan and Iraq. The last time the government ran an annual surplus was in 2001. (AP)