“The report shows Iraq’s budget surplus is likely to grow significantly over the course of 2008, but it is equally important to realize that spending in Iraq is also increasing,” Deputy Assistant Treasury Secretary Andy Baukol wrote to the GAO.

Prime Minister Nuri al-Maliki’s government submitted a $22 billion supplemental budget to the Iraqi parliament in July, including $8 billion in proposed capital expenditures, Baukol wrote.

The issue raised the hackles of several members of Congress earlier this year ― particularly because Bush administration officials said on the eve of the war that Iraqi oil money would pay for reconstruction.

In 2003, then-Deputy Secretary of Defense Paul Wolfowitz told the House Appropriations Committee: “We’re dealing with a country that can really finance its own reconstruction, and relatively soon.”

Rep. Henry Waxman, D-California, said Tuesday’s report “is going to make a lot of American families very angry.”

“The record gas prices they are paying have turned into an economic windfall for Iraq, but the Iraqi government isn’t spending the money on rebuilding,” said Waxman, the chairman of the House Oversight and Government Reform Committee.

Levin spokeswoman Tara Andringa said the senator hopes to tighten rules governing U.S. expenditures on Iraqi reconstruction efforts in the next Pentagon authorization bill.

The Iraqi surplus has piled up even though the country’s oil production has only recently matched prewar levels, according to the Brookings Institution’s latest Iraq Index.

The country spent about 80 percent of its $29 billion operating budget in 2007, including public services and salaries, but only 28 percent of its $12 billion investment budget, the GAO found.

The export of crude oil accounted for 94 percent of Iraq’s revenues from 2005 to 2007, the GAO reported.

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