UPDATE 2-U.S. deficit down in first half 2010 - report

Mon Apr 12, 2010 11:39pm EDT

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(Updates with White House comment)

WASHINGTON, April 12 (Reuters) - The U.S. federal budget deficit in the first half of fiscal 2010 is down 8 percent from the same period a year ago, the Washington Post reported on Monday.

Citing senior Obama administration officials, the Washington Post said in an article posted on its website the smaller deficit was due to higher tax revenue and lower than projected spending to bail out the financial system.

The newspaper said if the trend continued for the rest of the year it would mean the annual deficit would be $1.3 trillion -- about $300 billion less than the administration's projection two months ago for 2010.

The Treasury earlier released a statement that showed a cumulative $181 billion of money disbursed to stabilize the financial system had been repaid through March, and noted that estimates for the program's final cost were falling.

"While the positive news is welcome, it is premature and irresponsible to be making deficit projections for the fiscal year as a whole," said Kenneth Baer, spokesman for the White House Office of Management and Budget.

"The Administration will issue revised deficit numbers as part of the Mid-Session Review this summer," Baer said.

No official statement on the deficit is scheduled until the release of a late-summer review. The Post said the officials spoke on condition of anonymity because the findings are preliminary and the results for the full year might not turn out so well.

The White House has forecast a $1.6 trillion budget deficit this year, or about 10.6 percent of gross domestic product, the highest level since World War Two.

Republicans are expected to use the ballooning budget deficits as a rallying cry in mid-term elections in November as they try to unseat Democrats by blaming them for running up record deficits.

In February President Barack Obama named a bipartisan panel to tackle exploding budget deficits and promised it broad leeway to recommend ways to put the country on a path to fiscal responsibility.

He asked the commission to come up with a strategy to balance the budget, excluding interest payments, by 2015.

The Washington Post story said the officials "expressed cautious optimism" about the figures but noted that the outlook remains uncertain.

The story said a senior administration official acknowledged that the lower deficit number would not substantially ease the budget problems facing the government.

"But the favorable trend could allow Democrats to say they have turned the corner, and the number is one they would want to highlight for voters souring on Obama because of the government's red ink," the newspaper said.

(Reporting by Deborah Charles, Editing by Peter Cooney and Sandra Maler)

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