WASHINGTON, Jan 25: The US government deficit would ease to $368 billion in the current fiscal year under existing laws, but the real gap may be higher when costs for Iraq are added, the Congressional Budget Office said on Tuesday.
The deficit would be slightly lower than the record $412 billion shortfall in the 2004 fiscal year that ended last September 30. But the estimate is up $20 billion from the CBO's September forecast of a $348 billion deficit.
Moreover, the non-partisan CBO said that its estimates "omit a significant amount of spending that will occur this year - and conceivably for some time in the future - for US military operations in Iraq and Afghanistan and for other efforts in the war on terrorism."
CBO said under its baseline estimates, the deficit would ease to $295 billion in fiscal 2006 and $261 billion in fiscal 2007. As a percentage of US GDP, the deficit would fall to 3.0 per cent in 2005 and 2.3 per cent in fiscal 2006, CBO said.
The budget agency acknowledged that there would likely be costs not yet authorized by Congress, making the real deficit significantly higher. "Additional appropriations (for Iraq, Afghanistan and the war on terror) are expected to add about $30 billion to the deficit this year and possibly more next year," CBO said in its report.
"Thus, the 2005 deficit is likely to total around $400 billion and the 2006 deficit well over $300 billion. With that extra spending included, the deficit in 2005 would amount to about 3.3 per cent of GDP - compared with last year's deficit of 3.6 per cent of GDP."
The CBO's long-range outlook, which goes through fiscal 2015, projects the US government will remain in the red until fiscal 2012. The cumulative deficits would be $1.188 trillion in the 2006-2010 period and $855 billion in the 2006-2015 period, CBO estimated.
The long-range outlook meanwhile is based on the expiration of the existing tax cuts engineered by President George W. Bush. It also makes no provision for Bush's plan to overhaul the social security retirement system with private accounts.
John Lonksi, economist at Moody's Investors Service said the report had little immediate impact on financial markets because "it's nearly impossible to predict with any accuracy what the budget deficit's going to look like 10 years from now."
Asked about the projected return to surplus in 2012, Lonksi said, "I wouldn't count on it," adding that this would mean "drastic measures" including unpopular spending cuts. -AFP
