Last-Minute Deal Reached On US Fiscal Cliff

The US Senate has approved legislation aimed at averting the so-called fiscal cliff by stopping most tax hikes and across-the-board spending cuts that were due to begin with the New Year.

The legislation was approved with an overwhelming 89-8 vote, and came well after midnight on New Year's Day.

The House of Representatives must still approve the measure, possibly on Tuesday.

President Barack Obama has praised the agreement, saying: "While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay."

Without the legislation, economists had warned of a possible new recession and spike in unemployment.

The White House-backed legislation would prevent middle-class taxes from rising, and raise rates on incomes over $400,000 for individuals and $450,000 for couples.

It also blocks spending cuts for two months, extends unemployment benefits for the long-term jobless, prevents a 27% cut in fees for doctors who treat Medicare patients and prevents a spike in milk prices.

Vice President Joe Biden after a Senate Democratic caucus meeting on Monday

The deal would allow the White House and lawmakers time to regroup before plunging quickly into a new round of budget brinkmanship certain to revolve around Republican calls to rein in the cost of the Medicare health programme for the elderly and other government benefit programmes.

Officials also decided at the last minute to use the measure to prevent a $900 pay rise for lawmakers due to take effect this spring.

Vice President Joe Biden, who negotiated the deal with Republican Senate Majority leader Mitch McConnell, was on Capitol Hill to sell it to Democratic senators.

The tax hikes and spending cuts were due to come into force at midnight. But as global markets are closed for New Year's day, lawmakers have time to vote the deal into law.

The White House and Congressional leaders hope to send legislation to Mr Obama within a day or two, meaning consumers shouldn't notice any impact.

Mr Obama had originally campaigned for tax hikes to kick in for those making $250,000 and above and his acceptance of a higher threshold has already angered liberals, though still represents a political victory.

The president said the deal would extend tax credits for clean energy firms and also unemployment insurance for two million people.

Both sides are already gearing up for the next legislative showdown over the need to lift the government's statutory borrowing limit of $16.4trn, which was reached on Monday.

The Treasury will now take extraordinary measures to keep the government afloat for an undisclosed period of time until the ceiling is raised. Republicans are already demanding spending cuts in return.

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