US heading for budget surplus

US finances are improving thanks largely to a booming economy

The US Government is heading for the largest budget surplus in the country's history.

President Clinton said the $39bn surplus expected in the current fiscal year was the result of a dramatic improvement in the country's economy and tough spending discipline.

It compares with the previous estimate of a $10bn deficit for the year.

It will be the first year that the US budget has balanced since 1969.

The White House forecasts that the surplus could grow to $148bn by 2002.

Economy on the up

The expected improvement is based on the better performance of the economy, which has generated more tax receipts, together with lower-than-expected government spending.

The White House has raised its forecast for GDP growth in the year to September 30 to 2.9% from the previous estimate of 2.4%.

It has lowered its forecast for inflation to 1.6% from 2.1%.

And the unemployment rate forecast for 1998 has also been lowered to 4.7% from 4.9%.

Over the next five years GDP growth is expected to moderate, to 2% in 1999, and rise slowly to 2.4% in 2003.

Inflation of 2.1% is expected in 1999, rising gradually to 2.3% in 2003.

Unemployment is expected to rise to 5% in 1999 and gradually increase to 5.4% in 2003.

The moderate growth forecast reflects the view "that at current low levels of unemployment, growth cannot be maintained at its recent rapid pace without creating strong inflationary pressures," the White House said.

Short-term interest rates are expected to fall gradually. By 2001 the 3-month Treasury bill rate is expected to be 4.7%, about 30 basis points lower than the rate in mid-May.

The White House forecasts the budget surplus will reach $54bn in 1999, rising to $61bn in 2000, $83bn in 2001, and $148bn in 2002.

Surplus not for tax cuts

The news has given President Clinton something to smile about

At a White House ceremony President Clinton said he would oppose using the surplus for tax cuts until the expected social security deficit was solved.

"I will oppose any budget that fails to set aside the surpluses until we have strengthened social security."

But he held out the possibility that there could be a tax cut once social security reform is completed early next year.