Massive US budget calls for thrift
Updated
A surprising burst in growth over the last quarter has led to some predictions that America is shaking-off the recession it fell into, in late 2007. Unemployment usually keeps rising well after a recession ends, and that's what President Obama's economic policy-makers have kept clearly in mind when they framed the US federal budget for the coming fiscal year.
Presenter: Scott Alle, Finance correspondent
Speakers: Amy Auster, head of international economics, ANZ bank; Barack Obama, US President; William Galston, economist, Brookings Institution, Washington
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ALLE: The numbers are big, even by US standards.
AMBC ANNOUNCER: ...And good evening the numbers in president's new budget seem to defy gravity...
ALLE: The budget plan for the world's largest economy contains spending of $US3.8 trillion with a forecast record deficit or debt of $1.6 trillion.
AUSTER: People talk trillions and your head starts to spin but if you actually look at it relative to the size of the economy yes it's a big deficit but we're also going through a very big recession.
ALLE: Amy Auster is head of International Economics at the ANZ bank. She says America's deep two year long recession has crunched government revenue.
AUSTER: The impact or the reason why you're seeing a deficit of this magnitude is not because the government is spending so much money but the money that is coming in has been very, very weak.
ALLE: And that's why President Obama outlined a package with an emphasis on job creation, flagged a tax on wealthy households and told Americans spending, both personal and public, had to be reigned-in.
OBAMA: The bottom line is this - we simply cannot continue to spend as if deficits don't have any consequences, as if waste doesn't matter, as if the hard-earned tax dollars of the American people can be treated like monopoly money, as if we can ignore this challenge for another generation.
ALLE: But in order to address more immediate priorites, and free-up the gears of the economy there'll be tax cuts for small business investments, tax credits for companies that hire new workers, and tax breaks for energy related investments. William Galston, an economist at the Brookings Institution in Washington, says the budget does at least try to reduce fiscal excesses.
GALSTON: Well I have two first impressions - the first is that it is pretty much a steady as you go budget. It attacks the question of the federal budget deficit around the edges but not head-on and secondly the information contained in this budget particularly the long-term projections dramatise why we cannot stay on the course we're presently on.
ALLE: That would see budget deficits adding up to $8.5 trillion over the next decade. The interest costs alone to service all the debt will run in hundreds of billions.
GALSTON: We're projected to spend about $180 billion for interest on the national debt. According to these budget projections we're talking about spending more than $900 billion a year, 10 years from now, which is more than we're now spending on defence by a considerable measure.
ALLE: But just cutting spending in a recession isn't a viable option. Amy Auster.
AUSTER: Now would be a bad time to introduce another level of fiscal discipline because you would only deepen the recession. And in fact if you look at the US economy as a whole, really what you see is it's the states, the US states that are in a very, very serious and dire budget situation, quite a few of them, and they are having to aggressively cut back on their budgets beause they don't ahve access to the kind of financing that the federal government does.
ALLE: The budget, all 2,400 pages of it, will go before Congress for approval. The Republicans predictably have already labelled it as reckless and unsustainable. But the President will continue with his message that money has to be spent now to save the US from even darker economic times.
