Taxes are helping to boost the government's coffers

The deficit came in at $33.2bn (�25.8bn), sharply lower than the $53.4bn deficit posted in July 2005.

Government spending during the month fell to $192.9bn from $195.5bn a year ago, while tax receipts surged to $159.8bn compared with $142bn.

Receipts are at record levels of $1.97 trillion for the first 10 months of the financial year, the Treasury said.

The narrowing of the deficit reflects a surge in government revenues from higher corporate and individual tax receipts.

Further falls?

The government now predicts the deficit for the financial year - which ends in September - will come in at $296bn, significantly lower than previous estimates.

In February, the administration had forecast a deficit of $423bn.

Healthy economic growth has helped boost the nation's coffers and although government spending is still rising at 7.8%, the rate of increase has slowed.

The US has recorded consistently high deficits in recent years, leading critics of the Bush administration to accuse it of fiscal indiscipline.