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01 December 2023

Obama struggles to balance cuts, investment


US President Barack Obama unveils his fiscal 2012 budget 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 tens if not hundreds of billions of dollars of spending cuts, while making investments that will help "win the future."

To square the circle, Obama has already said the budget will set in motion cuts to non-essential programs worth ê400 billion over five years.

It is also expected to cut ê78 billion from the defense budget over five years, slash 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.
He will also argue for an ê18 billion plan to improve high speed Internet access, and ê8 billion for high-speed railways in the fiscal year starting October 1.

At 2,448 pages and a weight of 4.5 kilograms, the budget will contain something for most members of Congress -- who have to approve it -- but plenty more that will be loathed.

Ahead of the budget's publication, Republicans have been outdoing themselves in the promotion of ever-deeper spending cuts and criticizing 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.

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 House Speaker John Boehner, promising a ê100 billion 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," said Augustine Faucher of Moody's Analytics.

"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 ê600 billion."

Fears are growing that the inability of the United States 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, Federal Reserve chairman Ben Bernanke 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 ê1.48 trillion this year, or 9.8 percent of gross domestic product (GDP), according to the Congressional Budget Office.