U.S. October fiscal deficit widens 42% year-over-year to $404 billion; full-year shortfall projected at $2.2 trillion

U.S. Treasury data released Thursday showed that the U.S. federal budget deficit reached $404 billion in October, up 42% from a year earlier, driven by higher government spending and lower tax receipts. The Treasury expects the deficit to widen further to about $2.2 trillion for the current fiscal year as government spending continues to outpace tax revenue. In the first month of the new fiscal year that began Oct. 1, U.S. government spending rose 12% year-over-year to $773 billion, while tax receipts fell 9% to $369 billion. Customs duty revenue fell about 39% year-over-year to $19.2 billion. The increase in government spending was mainly driven by higher outlays for defense, healthcare and interest on the public debt. Meanwhile, tariff and corporate income tax refunds rose from a year earlier, weighing on government tax receipts. However, the scale of tariff refunds has slowed somewhat since this summer. The latest data underscore the fiscal pressure facing the U.S. government. With government spending continuing to exceed tax revenue and rising interest rates pushing up debt financing costs, the U.S. deficit remains at a high level. In its report, the Treasury projected that the U.S. deficit will reach about $2.2 trillion in fiscal 2027, widening further from the prior fiscal year. In fiscal 2026, which ended Sept. 30, the federal deficit reached $1.99 trillion, equivalent to about 6% of gross domestic product (GDP). Government spending far exceeding federal tax revenue, along with surging debt interest costs caused by higher interest rates, are the main factors keeping the deficit elevated. It is worth noting that U.S. government interest payments on debt hit a record high of about $1 trillion in the prior fiscal year. As the high-interest-rate environment continues to push up government debt-servicing costs, interest payments are becoming an important reason for the growing U.S. fiscal burden. If the Treasury's latest forecast materializes, the fiscal 2027 deficit will increase by about $210 billion, or about 10.6%, from the prior fiscal year.