Watchdog warns on US spending

THE head of the US Congress budget watchdog has issued a stern warning on the rapidly deteriorating state of government finances as fresh figures put the deficit on track for a record.

'It is time to admit we are in a fiscal hole and to stop digging,' said David Walker, head of the non-partisan General Accounting Office.

Walker's blunt remarks came as President Bush formally submitted an $87bn (£54bn) budget request for reconstruction in Iraq, which would be a significant extra fiscal burden.

'Our nation has a major long-term fiscal challenge that is not going away and requires serious and sustained attention,' said Walker, the US Comptroller General.

'The current and projected deficits far exceed the costs associated with Iraq, the global war against terrorism and any incremental homeland security costs. The bottom line is, there is little question that deficits do matter, especially if they are large, structural and recurring in nature.'

Walker's broadside also coincided with the release of the August budget statement from the Treasury. That put the year-to-date deficit at a record $400.46bn. With less than a month left in the fiscal year, the fiscal 2003 deficit will easily outstrip the previous record of $290bn in 1992.

The costs associated with Iraq and Afghanistan are expected to push the deficit above $525bn for the next fiscal year, which starts next month. That would equal about 4.7% of gross domestic product.

After running four consecutive annual surpluses up until 2001, the government returned to deficits in 2002. The Bush administration has blamed the reversal on the war on terror and the sluggish economy.

But Democrats have highlighted heavy tax cuts as a key driver of the shortfall. Representative John Spratt, a South Carolina Democrat and ranking minority member of the House Budget Committee, said Walker's speech 'draws attention to the recent, stark reversal in our fiscal fortunes and the magnitude of the challenges awaiting us beyond the traditional 10-year budget window'.

The White House said Bush's $87bn spending plan would include $66bn for the US military deployment and intelligence operations. Of that, $51bn would specifically support military operations in Iraq. Bush's package also includes $11bn for US military operations in Afghanistan, and an additional $800m to accelerate reconstruction efforts there.

Earlier this year, Congress gave Bush $79bn to pay for the conflicts in Iraq and Afghanistan.