Deficit slashing must be fast, bold—experts

Press, 3 February 1984, Page 6

Deficit slashing must be fast, bold—experts

NZPA-Reuter New York

The Reagan Administration must reduce Budget deficits faster than projected if. the United States economic recovery is not to be jeopardised by a rise in interest rates, economists said yesterday. President Ronald Reagan presented an election year Budget to Congress yesterday, calling for $U5925.5 billion in spending. It seeks to continue America's arms build-up, promises no new taxes, and carries the thirdlargest deficit in United States history — SUSIBO.4 billion. The economists said that they believed Mr Reagan would eventually reach a compromise with Congress over the Budget but tough steps were needed to reduce deficits. The United

financial year runs from October 1 to September 30 in the next year. “The deficit is too high historically in proportion to the size of the economy and bold measures must be taken to cut it back,” said Robert Parry, chief economist of the Los Angelesbased Security Pacific National Bank.

Mr Parry, due to testify next week on monetary and financial policy to the Senate Banking Committee, said that huge Budget deficits could force the Federal Reserve Board to tighten monetary policy in the second half of this year. He said that that would force up interest rates and curb growth in 1985. The Stock Exchange chairman, Mr Arthur Levitt, called for joint effort by the Administration and Con-

gress to reduce Federal spending. “Every programme must be open to negotiation, and there can be no sacred cows,” Mr Levitt said. The economists surveyed expressed particular concern about the proposed outlays for defence totalling SUS 264 billion, up 9.3 per cent on SUS 242 billion in the 1984 financial year. “He should have taken a harder look at defence spending,” said Richard Peterson, of the Continental Illinois Bank Holding Company.

Sung Won Sohn, of Norwest Bank Holding Company, also called for cuts in defence spending. “The burden of decreased spending has to be shared, and this must include defence,” he

“The goal of the Budget should be to reduce deficits by substantial amounts... like down to SUSIOO billion.”

On Capitol Hill Congress Budget Committee staff said that Mr Reagan’s Budget was unrealistically optimistic and should project a SUSI9S billion deficit in 1985 and not SUSIBO.4 billion.

David Cross, of Chase Econometrics, said that he expected a compromise to be reached on the Budget after the Presidential election in November, but he was not sure of progress towards reining in projected deficits.

“We won’t be bringing the deficit down to below ?USISO billion for at least two years,” he said.