US $400bn in red as terror bill mounts

THE White House is set to raise its forecast for America's budget deficit by at least one-third to more than $400bn (£248bn) for this financial year and next, pinning much of the blame on the fallout from 9/11.

The record deficit estimates, due for release today, will stoke a fierce political row over the health of government finances.

President George Bush's Democrat opponents point the finger at his tax-cutting. But White House officials say the larger deficits remain manageable and represent the extra burdens the country has faced in recent years.

'I want to remind you: what was the cost of September 11? What is the cost of a country that is attacked? What is the price that the American people would have to pay if something like that were to ever happen again?' said Ari Fleischer, the White House's outgoing spokesman.

White House aides expect the Office of Management and Budget to forecast a deficit of between $410bn and $425bn this year, and a similar figure for 2004. Just six months ago, the White House was forecasting the deficit would be $304bn this fiscal year and $309bn next year.

The latest predictions are largely in line with calls earlier this year from the non-partisan Congressional Budget Office, and underline the rapid and severe deterioration in the government's fiscal position.

In the four years to 2001, Washington posted consecutive budget surpluses. But lacklustre growth since then, combined with extra government spending after 9/11 and the wars in Iraq and Afghanistan have turned large surpluses into deficits. The previous record deficit in dollar terms - $290bn - was set in 1992 when Bush's father was in the White House.

However, a $400bn deficit this year would equate to roughly 4% of gross domestic product. The largest gap relative to the overall economy came in 1986, when the deficit hit 6% of GDP.

Democrats say Bush's $1.35 trillion package of tax cuts in 2001 and the new round of $350bn reductions passed earlier this year have exacerbated the fiscal crisis without appreciably boosting the rate of economic growth.

'As bad as the budget is going to appear, it's actually worse,' said John Spratt, the leading Democrat on the House of Representatives Budget Committee.

The White House is expected to avoid a long-range, 10-year forecast, sticking instead to a five-year outlook. Administration officials claim that decade-long forecasts are unreliable.