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Obama set to unveil austerity plan
US president to release a tough and tight fiscal budget, but House Republicans want deeper cuts.
Last Modified: 13 Feb 2011 17:07 GMT
Obama's proposal already cuts the budget by $400bn over five years, but the target is $1.1tn over 10 years [AFP]

Barack Obama, the US president, is set to unveil his fiscal 2012 budget on Monday, an election-year plan forged from conflicting needs to cut spending and stoke the economic recovery.

With vast crisis payments and sharply lower tax revenues making it difficult for the government to balance its books, Obama will set out an austerity plan that will help set the tone for next year's presidential race.

It is expected to address widespread public anger that the government is living beyond its means, detailing sweeping spending cuts while including some investments.

To square the circle, Obama's proposed budget for fiscal 2012 will seek to cut the record federal deficit, slashing energy subsidies for the poor and freeze public workers' pay.

But faced with high unemployment and an economic recovery that is still struggling to escape the orbit of the 2008 economic crisis, Obama will also give states more flexibility to pay for unemployment benefits.

Most of the projected savings would be achieved through two changes would require congressional approval.

At 2,448 pages and a weight of 4.5kg, the budget will contain something for most members of congress, but plenty more that will be loathed.

Congressional battle

On the eve of of the budget's publication, Republicans have been promoting ever-deeper spending cuts and criticising Obama for not doing enough.

Republicans argue spending cuts will help boost growth, while the Obama administration argues cuts are needed, but should be carefully measured for fear of derailing the recovery.

Obama's proposed  budget cuts so far 

The plan: Cut $1.1 trillion deficit over next 10 years

   Two-thirds of savings to come from spending cuts and one-third from tax increases.
  Defence budget: $78bn over five years
  Pell Grant Programme: $100bn over a decade

For example, as Obama seeks $53bn for high-speed rail over the next few years, House Republicans are trying to pull back $2.5 bn that has already been promised.

Their budget also includes $1.1 bn cut to Head Start pre-kindergarten education programmes.

Bringing the two sides together is likely to be a long process that takes up most of the year. Congress has yet to approve the fiscal 2011 budget.

"There's no limit to the amount we're willing to cut to help get our economy moving again," said John Boehner, the House speaker, promising a $100bn cut in spending to the 2011 budget, with more to come.

But experts say cuts in discretionary spending, like those proposed by Obama and the Republicans, are just a drop in the fiscal bucket.

"This spending accounted for just one-fifth of total outlays last fiscal year," Augustine Faucher of Moody's Analytics says.

"Even if it had been entirely eliminated - wiping out the budgets for running the government, education, national parks and the like - the fiscal 2010 deficit still would have topped $600bn."

Growing fears

Fears are growing that the inability of the US to get its budget under control could eventually lead to a debt crisis and a possible default that would plunge the globe into crisis.

This week, Ben Bernanke, US Federal Reserve chairman, warned that dramatic change was inevitable.

"The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes ... [or] as a rapid and painful response to a looming or actual fiscal crisis," Bernanke said.

The US budget deficit is currently at the highest levels since World War II, and is projected to hit $1.48tn this year, or 9.8 per cent of gross  domestic product, according to the congressional budget office.

Source:
Agencies
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