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Last Updated: Friday, 5 May 2006, 15:07 GMT 16:07 UK
US budget deficit set to shrink
US flag with superimposed dollar bills
The US government is burdened with a massive budget deficit
A surging economy and the ensuing rise in federal tax revenues could cut the US budget deficit this year, according to the Congressional Budget Office.

It said the deficit for the year to 1 October could be as low as $300bn (162bn), well below an earlier White House's estimate of $423bn.

The office said a "robust growth in revenues" was responsible.

In March, Federal Reserve boss Ben Bernanke said a big deficit threatened future living standards.

Cost of war

He said he was worried about the strain on federal finances as more "baby-boomer" Americans retired and started collecting social security and Medicare benefits.

But his concerns look like they could be partly relieved by a surging US economy, which grew at an annual rate of 4.8% in the first three months of 2006.

A growing economy means more revenues for the federal government.

The US budget deficit for the 2005 fiscal year was $318bn.

Work on the rebuilding of the damaged levee in the Lower Ninth Ward in New Orleans
Billions of dollars are being spent on hurricane relief

Seven months into the 2006 financial year, the deficit is running at $183bn, $53bn lower than it was at the same period last year.

In producing its estimate, the Congressional Budget Office assumes the enactment of a spending bill for the Iraq war and hurricane relief, worth up to $109bn, and a package of tax bills costing $70bn.

Earlier in the week Congress passed the Iraq spending bill, adding $15bn to the Bush Administration's request.

And keeping spending under control will be a key task of the new Budget director Robert Portman, the former US Trade Representative whose appointment is still awaiting Congressional approval.

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