The U.S. budget deficit will shrink this year to $642 billion, the smallest shortfall in five years, according to a new government report.

The nonpartisan Congressional Budget Office Tuesday reduced its estimate of this year's likely shortfall by more than $200 billion compared to what it had expected in February. The agency pointed to stronger-than-expected tax receipts as well as payments to the Treasury by the government-owned mortgage financiers Fannie Mae and Freddie Mac for the change.

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That amount would be a major improvement from last year's $1.1-trillion deficit, and would mark the first time since 2008 that the gap between taxes and spending slipped below $1 trillion.

Next year's deficit will further shrink to $560 billion, CBO said. The deficit will continue to fall in 2015, according to the report, before beginning to grow again.

The brighter outlook will help postpone the effective deadline this year for raising the government's debt ceiling.

Tax receipts for the fiscal year ending Sept. 30 will be up 15 percent, CBO said, partly because Congress allowed a payroll-tax cut to expire, partly because a January budget deal allowed taxes on the wealthy to rise and partly because of economic growth.

The other major reason for the improvement is the expectation that Fannie Mae and Freddie Mac will pay $95 billion to the Treasury this year, according to CBO.-- Bloomberg News