Bush wields axe to ease deficit

PRESIDENT GEORGE Bush yesterday sent Congress a $2.57 trillion (pounds 1,370bn) budget for fiscal 2006, cutting or eliminating more than 150 government programmes. The package is presented as a first step towards halving the federal deficit by the time he leaves office in fewer than four years.

In the financial year starting on 1 October 2005, the budget deficit is projected to rise to a record $427bn (pounds 231bn), roughly 3.5 per cent of GDP. But under pressure from conservative Republicans and the financial markets, Mr Bush is committed to reducing the shortfall to less than $230bn by 2009.

"It's a budget that reduces and eliminates redundancy. It's a lean budget," the President said yesterday. He called on Congress to show "fiscal responsibility", by passing the proposals speedily. But budget analysts and Democrats instantly attacked the proposals, while some Republicans predicted that even if the White House accomplished the political miracle of securing all the cuts it wants, the net impact would be barely $15bn.

US budgets, unlike their UK counterparts, are little more than a set of recommendations with no guarantee of passage even when, as now, the President's party controls both chambers on Capitol Hill. If the past is any guide, he may only achieve results in a score of the 150 programmes targeted. Some of the measures - a $1.2bn reduction in subsidies for the Amtrak rail service, a $6bn annual cut in Medicaid, the federal health programme for the poor, and lower farm subsidies - will be furiously contested. Others will run into an even deadlier foe, bureaucratic inertia.

The "twin deficits" in the federal budget and the current account are already casting a shadow over Mr Bush's ambitious second-term agenda, especially since this President, who has yet to veto a single spending measure passed by Congress, has yet to establish any credibility as a cost-cutter. Moreover, the cuts have been concentrated on so-called discretionary spending. They steer clear of the entitlement programmes Medicare and Social Security, which with the defence budget constitute two-thirds of government outlays.

Pentagon spending goes up by $19bn to $419bn, with priority for higher pay for servicemen and the overhaul of the military. But even that, greater than the military spending of the next 10 largest national defence budgets combined, excludes operations in Iraq and Afghanistan, running at $5bn a month, and for which Mr Bush last month requested an extra $80bn.

Other omissions undermine the White House forecasts. The planned deficit reduction makes the unlikely assumption that Mr Bush's first-term tax cuts will lapse as they are supposed to do under existing "sunset clauses". Second, no mention is made of Mr Bush's plan to part-privatise social security. If enacted, this would cost $754bn over the next 10 years, Dick Cheney, the Vice-President, acknowledged.