Financial News

  • 12 December 2013, 5:57

US Budget Deal Should Avoid New Shutdown

Congressional negotiators have staged a rare show of bipartisanship to reach a modest US budget agreement, which should eliminate the threat of another partial government shutdown early next year.

The plan - expected to be approved by both houses of Congress - restores about $63bn†(£38bn) in automatic spending cuts from programmes ranging from parks to the Defense Department.

Spending increases would be offset by a variety of increased fees and other provisions elsewhere in the budget totalling about $85bn†(£52bn) over a decade, leaving enough for a largely symbolic cut of about $23bn in the nation's debt, now standing at $17trn and growing.

The White House quickly issued a statement from President Barack Obama praising the deal as a "good first step".

He urged lawmakers in both parties to follow up and "actually pass a budget based on this agreement so I can sign it into law and our economy can continue growing and creating jobs without more Washington headwinds".

While bipartisan approval is expected in Congress, there remains grumbling from liberals over the omission of an extension of long-term unemployment benefits while Tea Party-aligned groups are pushing Republicans to oppose it.

But there is confidence there is enough support behind the agreement to prevent a repeat of the partial shutdown, which marred the start of the US federal budget year on October 1.

That fight centred on Republican attempts to block funding for the President's overhaul to the health care system.

The country also came close to the first-ever federal default when Congress could not reach agreement on raising the debt ceiling.

Republicans eventually relented and agreed to a short-term deal to fund the federal government and raise the debt ceiling when it became clear that Americans were deeply angered over their tactics.

Announcement of the new deal came from the two negotiators, Democrat Senator Patty Murray and Republican Paul Ryan.

Ms Murray said: "We have broken through the partisanship and gridlock" that could have produced a government shutdown in January.

While Tuesday's agreement would have little impact on deficits, it holds the potential for avoiding politically charged budget clashes for the next year or two.

But the plan does nothing to address three of the big drivers of American deficit spending - the Medicare government health insurance programme for the elderly, the Medicaid aid programme for the poor and the Social Security government pension system.

Conservatives are upset that the plan rolls back automatic spending cuts, known as the sequester, while liberals are angered about the requirement that federal employees will have to pay more toward their pension accounts.

Significantly for Democrats, they failed in their bid to include an extension of benefits for workers unemployed longer than 26 weeks.

The programme expires on December 28, when payments will be cut off for an estimated 1.3 million individuals.

Officials said that under the agreement, an estimated $63bn in automatic spending cuts would be restored through the end of the next budget year, which runs to September 30, 2015.

The offsetting $85bn in deficit cuts would play out over a decade.

It calls for newly-hired federal workers to make larger contributions to their own pensions, as well as an increase in a federal airport security fee that would add $5 to the cost of a typical round-trip flight.

The annual increase in military retirement benefits for those under age 62 would be slowed.

More savings would come from extending an existing 2% cut in payments to providers who treat Medicare patients.

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