Long-Term Fiscal Challenges
percent as of September 30, 2010.20 The economic downturn and the nature and magnitude of the actions taken to stabilize the financial markets and to promote economic recovery will continue to shape the federal government’s near-term budget and debt outlook. While deficits are projected to decrease as federal support for states and the financial sector winds down and the economy recovers, the increased debt and related interest costs will remain.
The ultimate cost of the federal government’s actions to stabilize the financial markets and promote economic recovery will not be known for some time as these uncertainties are resolved and further federal government actions are taken in fiscal year 2011 and later. Looking ahead, it will be important for the federal government to continue to determine the most expeditious manner in which to bring closure to its financial stabilization initiatives while optimizing its investment returns.
The 2010 Financial Report includes the first sustainability statement required under new financial reporting standards.21 This statement presents comprehensive long-term fiscal projections for the U.S. government, expanding on similar information presented in recent years’ financial reports and consistent with the fiscal simulations that GAO has published since 1992. This enhanced reporting will hopefully increase public awareness and understanding of the long-term fiscal outlook: both its overall size and the major drivers of that outlook. Information on the imbalance between revenues and spending currently built into the structure of the budget can help stimulate public and policy debates and help policymakers make more informed decisions about the overall sustainability of government finances.
20Federal debt held by the public relative to GDP is a function of the federal government’s fiscal policy as well as overall economic conditions. Congress and the President have enacted laws to establish a limit on the amount of federal debt that can be outstanding at one time. Federal debt subject to the limit includes both debt held by the public and debt held by government accounts (intragovernmental debt holdings). In February 2011, we reported on the debt limit in GAO, Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market, GAO-11-203 (Washington, D.C.: Feb. 22, 2011).
21Under such standards, the new statement will be audited beginning in fiscal year 2013.