Budget Surplus Forecast For 2002 Prediction Is $63 Billion Extra

The federal budget will not only be balanced by 2002, as called for in last month’s budget accord, but will show a $63 billion surplus, the White House predicted Friday.

That’s the most optimistic forecast yet, nearly double the 2002 surplus projected earlier this week by congressional analysts.

“The nation’s overall economic performance could hardly be better,” said the annual summer economic review by the White House Office of Management and Budget.

The OMB predicted moderate growth over the next five years, with continued low inflation and falling interest rates.

It credited both the sound economy and the budget deal struck earlier this summer between President Clinton and Congress.

The report said the deficit for the current fiscal year, which ends Sept. 30, would be $37 billion - the smallest since 1974 and $90 billion below the initial White House estimate last winter.

The administration predicted the deficit would rise to $58.3 billion in 1998 but then begin to fall again, reaching $7 billion in 2001. Surpluses were projected from 2002 to at least 2007.

The report suggested the nation’s finances will improve far more quickly than previously believed.

Just a month ago, budget negotiators had anticipated a 2002 surplus of about $1 billion.

The OMB usually updates its forecast in mid-July, but delayed it this year to avoid interfering with the balanced-budget negotiations.

By waiting until September, the administration also was able to incorporate changes made as a result of the two major budget bills enacted last month, a five-year balanced budget and the largest tax cut in 16 years.

“This report shows that, taken together, these acts will save $247 billion over five years, helping to achieve a budget surplus of $63 billion in 2002,” said OMB Director Franklin D. Raines.

The projected $63 billion surplus in 2002 would be the first since 1969, when a tax surcharge enacted by Congress to help finance the Vietnam War temporarily swelled the Treasury’s coffers.

The administration’s report asserted that without the budget accord, the deficit would have begun to rise in 1998 and remain between $50 billion and $100 billion for the next five years.

Friday’s forecast basically mirrored trends reported earlier this week by the Congressional Budget Office in its independent review of the economy, except for the far larger projected budget surplus in 2002.

The CBO estimated a $32 billion surplus in 2002.

Administration budget officials said slightly different assumptions for economic growth used by Congress and the White House resulted in the discrepancy.

The White House said inflation, as measured by the Consumer Price Index, would be 2.4 percent this year and 2.6 percent in 1998, down from last year’s 3.2 percent.

It said economic growth, as measured by changes in the gross domestic product, would be 3.5 percent for this year and then range from 2 percent to 2.4 percent over the next five years.

It predicted short-term interest rates, based on 90-day Treasury bills, would decline from about 5 percent now to 4.4 percent in 2002.

The White House predicted more restrained consumer spending in the coming years, saying pent-up demand for consumer goods from the last recession had been pretty much exhausted. It also predicted a slowdown in new house construction.

And it said recent rises in the dollar would “restrain the growth of net exports for some time to come” by making U.S. goods more expensive abroad.