WASHINGTON -- The federal budget deficits for this fiscal year and next are expected to be much lower than originally projected, the White House said yesterday.

The deficit for fiscal 1994, which ends Sept. 30, is now projected at $220 billion -- $15 billion less than the Clinton Administration predicted in February and $85 billion less than projected before President Clinton's economic plan was passed last August, revised budget estimates released yesterday showed.

The deficit for fiscal 1995 is now estimated to be $167 billion, $9 billion less than estimated in February and $135 billion below the original estimate, the latest administration figures show.

Clinton's economic plan was expected to cut the federal budget deficit by $500 billion over five years. However, with the steady economic growth the country has experienced in the last 18 months, the deficit is now projected to fall by almost $700 billion by fiscal 1998, the estimates prepared by the Office of Management and Budget showed.

The revised deficit projection "makes very clear that the president's economic plan is not only working, it is working beyond our greatest expectations," said outgoing Budget Director Leon E. Panetta. "We are reducing the deficits [and] cutting the debt-to-GDP ratio in half.

"What we have in this country right now is an investment-led economy with low inflation, and we haven't seen that for 30 years," Panetta told reporters at a White House briefing.

The deficit as a percentage of gross domestic product has fallen from 4.9% in 1992 to an expected 2.4% in 1995, said Panetta, who was named White House chief of staff in a personnel shake-up two weeks ago.

The president's economic plan also attempted to address the spending part of the budget, which had gotten out of control in previous administrations, said Alice Rivlin, incoming director of the Office of Management and Budget.

All of the president's efforts were rewarded by a positive reaction from the financial markets, said Robert E. Rubin, assistant to the president for economic policy.

"When a serious program was put forward and the numbers were honest and real ... the markets reacted," Rubin said. "They rightfully believed in the integrity of our program... Long-term interest rates went down and that in turn generated the recovery we're all benefiting from today."

The administration's mid-session budget review, including economic projections that will be released tomorrow, will have higher interest rate projections than its estimates in February.

"It should surprise no one that our interest rate projections -- based on what has happened -- are higher," Rivlin said.

Rivlin said that the administration does not fear that rising interest rates "will injure economic growth."

"You've got a momentum which will be able to keep this economy going forward," Rubin said.

While the deficit outlook is rosy for the next few years, Panetta warned that a health care reform package including some form of cost controls and universal coverage had to be passed to prevent further deficit increases.

Unless the government gets control of entitlement spending, of which the main chunk is health care spending, the federal budget deficit will begin to rise again in fiscal 1998, Panetta said.

"It's not sufficient to have health care reform without cost controls," he said.

Panetta complimented the president and Congress for their efforts in moving the country toward economic growth.

"The reason we were able to achieve this success is because the president was willing to make tough decisions, and the Congress had the courage to basically back up that courage and put a very tough economic plan in place," Panetta said.

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