U.S. Budget package too little, too late?

Press, 23 November 1987, Page 13

U.S. Budget package too little, too late?

NZPA-Reuter Washington After four weeks of wrangling to put together a credible Budget deficit reduction package, White House and Congressional leaders may not have done enough to end turmoil in world financial markets, analysts say.

•'This is too little too late,” said Mr Paul Getman, senior economist with the W.E.F.A. Group, a Pennsylvania consulting firm. The SUS 76 billion twoyear deficit reduction package agreed by President Reagan and Congressional leaders on Friday (early Saturday, N.Z. time) met the minimum expectation of the financial markets, he said. “In terms of making a real dent in the deficit, this agreement does not do it,” agreed Mr Allen Sinai, chief economist at the New York-based investment company, Shearson Lehman. The burgeoning Federal Budget deficit has been cited as a major reason for the October 19 stock market crash that forced Mr Reagan to cast aside his dogged objection to raising taxes and negotiate a compromise with Congress. West Germany and Japan have been pressing the United States to put Its fiscal house in order as part of an international effort to stabilise currency exchange rates. Financial analysts say a lower Federal Budget de-

flclt would ease the American trade deficit and relax downward pressure on the dollar and upward pressure on interest rates. The Treasury Secretary, Mr James Baker, said the Administration would not seek a meeting of the Group of Seven Industrialised democracies until Congress Implemented the plan. Congress goes on vacation this week for Thanksgiving — when Americans celebrate the benefits of their bountiful land — so was not likely to finalise the deal until mid-December. Although analysts said they were relieved the negotiators were able to agree on a deficit reduction plan, they expressed concern about the political haggling that surrounded the protracted negotiations and the Implications for future moves to control American over-spending. "There was so much contention Involved in these rather meagre numbers,” Mr Getman said. "They are only a little better than the (automatic across-the-board) cuts

that would have gone into effect,” he said. The negotiators worked against a Friday midnight deadline of indiscriminate, across-the-board cuts imposed by the Gramm-Rudman Act, enacted by Congress last year In an effort to Impose discipline on the American economy. The eleventh-hour agreement on Friday did not stop the Gramm-Rud-man Act from being Implemented, but the new deal’s provisions will override the law if approved by Congress. Some Republicans attacked the new package even before Mr Reagan could present it in a televised announcement on Friday. Senator Bob Packwood, an Oregon Republican and key negotiator, denounced it as “a miserable little pittance” and predicted world financial markets would be discouraged. "I find it hard to believe they’ll be happy about It” Mr William Griggs, of the financial consulting firm, Griggs and Santow, said the Administration and Congress were "just too optimistic on what they think the deficit looks like and on what they think they are going to achieve." The Budget deficit for fiscal 1987, which ended on September 31, was SUSI4B billion, but official estimates for fiscal 1988, without the deficit reduction plan, range from lUSI7O billion to SUSIBO billion. The plan calls for SUS3O.2 billion in deficit reduction in fiscal 1988, which began October 1, and 5U545.85 billion In fiscal 1989. New taxes would raise SUS 9 billion in fiscal 1988 and SUSI 4 billion in fiscal 1989. The plan would also raise an additional SUSS.3 billion over two years from stricter tax enforcement and unspecified user fees, or Government charges for services such as national parks and coastguard protection. The plan did not specify where the tax Increases will be made but personal and

corporate Income tax rates would be left untouched as a bow to Mr Reagan's long and deep oppcsitlon to such increases. The plan calls for defence spending to be cut by SUSS billion this year and SUSB.2 billion next year while domestic cuts will total SUS 2.6 billion this year and SUS 3.4 billion next. Congress must approve the

details and enact the tax and spending bills that would put the budget accord into effect "We do have a lot of slogging yet to do,” said the White House Budget Director, Mr James Miller. The Governments of Japan and several West European nations praised the Washington accord, hoping it would stabilise stock prices and the dollar.