WASHINGTON, United States (Reuters):
Surging revenues cut the United States budget gap to US$247.7 billion in fiscal 2006, its lowest in four years despite record spending, the Bush administration said yesterday as it claimed victory in its drive to cut the deficit.
The deficit for the budget year that ended on September 30 represented 1.9 per cent of U.S. gross domestic product and compared with a US$318.7 billion shortfall for fiscal 2005 - the smallest gap since a US$157.8 billion deficit in 2002.
In an election year in which the war in Iraq and a congressional sex scandal have put Republicans at risk of losing one or both chambers of Congress, U.S. President George W. Bush said he had met his goal three years early to cut the budget deficit in half from a projected 2004 peak.
"The budget numbers are proof that pro-growth economic policies work," Bush told a news conference. "By restraining spending in Washington and allowing Americans to keep more of what they earn, the economy is creating jobs, reducing the deficit and making our nation a more prosperous nation ..."
Revenues for the fiscal year hit a record US$2.407 trillion, up 11.8 per cent from fiscal 2005, but outlays also rose by the same percentage to hit an all-time high of US$2.654 trillion.
Economists said a 12.6 per cent jump in individual income tax receipts was helped by capital gains from a recovering stock market, while the sharpest growth - 27.2 per cent - came from corporate income taxes driven by booming company profits.
However, they predicted that as the economy slows from its cyclical peak, future tax revenue gains will fail to keep pace with spending growth.
"The factors that drove this improvement, such as it is, aren't there right now and they aren't going to be there in the next few quarters," said Ken Goldstein, senior economist with The Conference Board in New York.
Fiscal recklessness
Democrats accused the president of fiscal recklessness and noted the administration had accumulated big deficits in a shift from the large surpluses inherited when he took office.
Senator Kent Conrad of North Dakota, the top Democrat on the Senate Budget Committee, said claiming a victory for halving the deficit from an "intentionally inflated high point" was misleading.
In February 2004, Bush set a goal of cutting the deficit in half from a then-projected fiscal 2004 peak of US$521 billion, or 4.5 per cent of GDP, although the actual deficit for that year came in at US$412.7 billion, or 3.6 per cent of GDP.
"The fact that some are trumpeting this year's deficit number as 'good news' shows just how far we've fallen. Our budget picture today is extremely serious by any measure," Conrad said.
In its last budget forecast in July, the Bush administration had said it expected the 2006 deficit to come in at US$296 billion, but officials had said in recent weeks that revenues had been stronger than anticipated.
The deficit announcement was in line with expectations and had little impact on the U.S. bond market, which is sensitive to the amount of debt issued by the Treasury.
The nonpartisan Congressional Budget Office had estimated last Friday that the 2006 gap would come in around US$250 billion.
Economists cautioned that looming health-care costs for retiring baby boomers will swell deficits in the years ahead.
Bush himself told a meeting of administration officials that tackling reform of Social Security, Medicare and other entitlement programmes remains a major political priority in the last two years of his administration.
"The government has made promises with a future generation's money that we can't keep. So the fundamental question facing the government in Washington, D.C. is, will we have the will necessary to deal with these entitlement programmes to leave behind a better budget picture to deal with the unfunded liabilities in the mandatory programmes, for future generations?"
