In updated forecasts that came as a big boost for the President, the White House’s Office of Management and Budget (OMB) estimated that, thanks to surging tax revenues, US Government borrowing for the 2005 financial year will total $333 billion — $94 billion less than projected in February.

If the projections prove correct, the deficit, a key cause for concern over the health of the US and the world economy, will be down by a fifth from its record level of $427 billion last year.

Mr Bush welcomed the revised estimates at a meeting of his Cabinet and said that he now believed that the deficit, would be halved earlier than he had thought possible.

“I told the Congress and the country we’d cut the deficit in half by 2009. We’re ahead of projections now,” he said.

“These numbers indicate that we’re going to cut the deficit in half faster than the year 2009, so long as Congress holds the line on spending.”

The White House said that the new projections pointed to the deficit declining to 2.7 per cent this financial year, from 3.6 per cent last year, then falling to 1.7 per cent by 2007.

The OMB said that the jump in tax receipts was cutting the deficit more rapidly than expected and it sought to attribute the improvement to the impact of earlier tax cuts.

US tax revenues have been about 15 per cent higher than last year, with corporate tax payments up by about two fifths. But Wall Street economists and critics of the Bush Administration expressed concern that the improvement in tax receipts could prove temporary and that the trend in the deficit would then deteriorate again.

Factors such as a jump in capital gains tax receipts, fuelled by rising share prices, could fade, analysts said.

Equity strategists and economists believe that US corporate profits growth is likely to slow sharply in coming months and that that could put stress on American stock market valuations. Some economists also expressed concern that the apparently painless improvement in the US Government’s finances from higher revenues could encourage policymakers in Congress, who drive spending plans, to adopt complacent attitudes and avoid taking tough decisions to restrain expenditure.

On Capitol Hill, Democratic Party critics of the President criticised the White House for persisting in gauging its pledge to halve the deficit using the starting point of $521 billion in projected borrowing originally made last year — a projection that was far higher than the eventual deficit for the year.

The dollar was buoyed by the combination of the improved budget outlook and a smaller than expected US trade deficit for May. The euro was pushed down by more than 1 per cent to trade at levels around $1.2090.

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