Deficit Down From Year-Ago Levels but Largest Since March

The federal government started its fiscal year by posting a $27.4-billion budget deficit in October, the largest since March but down 10.9% from a year earlier, the Treasury Department said Tuesday.

The $3.4-billion decline from last year was more than accounted for by a $2.3-billion drop in farm subsidy payments and a $2.6-billion shrinkage in military pay.

Last year, military pay was artificially high. The government had shifted a pay period from 1987 to 1988, an accounting trick that made the 1987 deficit abnormally low and the 1988 budget gap worse than otherwise.

Gerald M. Godshaw, an economist with the WEFA Group, a Bala-Cynwyd, Pa., forecasting service, said the drop in farm subsidy payments likely would continue for the next several months.

“Because of the drought, commodity prices are substantially higher. Quite frankly, even with the farm bill, the drought will reduce the deficit,” he said.

The Reagan Administration is projecting that the budget deficit in fiscal 1989 will shrink to $145.5 billion from $155.1 billion in the year ended Sept. 30. The Congressional Budget Office projects a $148-billion deficit.

However, Godshaw and most other private economists are projecting a 1989 deficit little improved and perhaps worse than 1988.

The Administration, in its latest economic forecast, predicts that the economy as measured by the gross national product will grow 3.5%. Private economists expect substantially slower growth of 2% to 2.5%, and consequently they believe that the government will collect less tax revenue.

Also, the need to spend $50 billion to $100 billion to rescue the savings and loan industry could severely inflate the deficit this year. In October, the Federal Savings and Loan Insurance Corp., which backs S&L; deposits up to $100,000, spent $1 billion, compared to $98 million a year ago.

“Congress and the President could get together and do some very hard decision making, but that seems to be very unlikely,” said Samuel D. Kahan, an economist with Kleinwort Benson Government Securities Inc. in Chicago.