Economists Forecast Happier Fiscal Year

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HAPPY fiscal new year.

In the United States, the federal government starts a fresh budget year today with much cheerier prospects than anybody would have thought likely last fall. With the budget likely in surplus in September, the fiscal 1993 deficit should have run about $260 billion, says Stanley Collender, budget expert for Price Waterhouse. That's $30 billion less than the fiscal 1992 deficit and an even greater improvement from the $327 billion deficit projected by President Bush last January or the $322 billion reckoned by President Clinton a few months later.

For 11 months through August, the deficit totaled $263 billion, down from $296 billion for the same months in fiscal 1992.

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The budget situation ``looks a lot better,'' says David Wyss, an economist with DRI/McGraw-Hill, an economic consulting firm in Lexington, Mass. ``It has given [the Clinton administration] a head start on controlling the level of the deficit. It doesn't solve the problem for them. But it makes it more manageable.''

Mr. Collender expects the administration and Congress to tackle deficit reduction again in October, making perhaps another $6 billion to $8 billion cut in the budget per year for five years.

``Most of the news on the budget is good - not bad,'' Collender says, with some astonishment.

He also anticipates passage by Congress of a balanced-budget amendment to the constitution. Since this would need ratification by 38 states, he doesn't expect any real impact until perhaps 2003 or even later. But for Democratic congressmen, a vote for the amendment could, as Collender notes, ``make them look holy on the deficit.''

Several factors account for the lowered deficit:

* Interest rates have tumbled far lower than most economists, including those drafting the budgets, anticipated. A 30-year Treasury bond offers a 6 percent interest rate today, down from 7.75 percent at election time last year. With some $3.3 trillion of federal debt held by the public, a 1 percent drop in average interest costs means a $33 billion saving for Uncle Sam.

The Revenue Reconciliation Act of 1993, with its hike in taxes for the well-to-do this year, hasn't had much direct impact on revenues so far. But the prospect this legislation offers for lower deficits in the future has trimmed interest rates, economists say.

Collender recalls that at election time last year, many savants were forecasting that a victory for Bill Clinton would result in soaring interest rates and a huge drop in stock market prices. Just the opposite happened.

* Revenue from corporate and personal income taxes was above that anticipated in last winter's budgets. The revisions in the national output statistics a month ago boosted income levels in 1992 and 1993 substantially over previous assumptions. Since Washington takes its share of income, the entire revenue picture, including that for future years, has been raised a notch higher.

* Federal outlays have been coming in lower than anticipated. One reason is that spending on Medicare and Medicaid has been growing at a 9 to 10 percent level instead of 12 to 13 percent. Expenditures on savings and loan closeouts have also been lower than projected.

Revisions of gross domestic product (GDP) for the second quarter announced Wednesday haven't changed the budget picture, Mr. Wyss notes. National output grew at a weak 1.9 percent annual rate from April through June, slightly faster than the 1.8 percent rate the Commerce Department estimated last month.

The Clinton budget of last winter reckoned that the budget deficit would come down from 5.2 percent of GDP this past fiscal year to 2.9 percent in fiscal 1996. This ratio is one measure of the impact of the budget on the economy and on national savings. Wyss figures that the deficit may be only 2 percent of GDP by fiscal 1996. This would free up more of national savings for private investment.

``It doesn't look all that bad,'' he comments.

What could undermine the favorable prospects would be another escalation in federal health expenditures, something which the Clinton health plan is intended to prevent. Spending in this area undermined efforts to get the deficit under control during the Bush administration and in President Reagan's last term.

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