The U.S. needs to end itspolitical gridlock in order to avert the so-called fiscal cliff that is jeopardizing a “fragile”recovery in the global economy, Australian Treasurer Wayne Swan said.
“Without action by Congress, the consequences would be very grave,” Swan said in his e-mailed weekly note yesterday. “The world cannot afford to see a continuation of the gridlock that has bedeviled the U.S. political system in recent years.”
President Barack Obama , claiming a mandate from voters after his Nov. 6 re-election, faces opposition over his call foran immediate tax-cut extension for people earning less than$250,000 and insistence that top earners pay more.
The U.S. faces $1.2 trillion in mandated spending reductions and tax boosts over a decade starting Jan. 1 should Congress fail to agree to reduce theU.S. deficit, which totaled$1.09 trillion in fiscal 2012.
Obama has offered no public concessions to House Speaker John Boehner , who has cited public support for the re-elected House Republican majority for hisstance of backing no increases in tax rates. Obama and Boehner will meet at the White House Nov. 16, along with HouseDemocratic Leader Nancy Pelosi , Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell .
Swan, who held discussions with Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben S. Bernanke in Washington last week, called for the Democrats and the Republicans to work together to avoid the cliff.
“Congress must heed President Obama’s call to work together to find common ground and get the U.S. budget back on asustainable long-term track while also continuing to support jobsand economic growth,” Swan said.
The president wants to letGeorge W. Bush-era tax cuts lapse on income of individuals above$200,000 and of married couples above $250,000. That would push the top tax rate to 39.6 percent from 35 percent.
The Senate, controlled by Democrats, and the House, controlled by Republicans, have each passed one-year extensions of their own proposals. The policies preferred by Democrats would lead to about $58 billion in higher taxes on top earners in 2013.
Concern about the impact of a potential political stalemate over the fiscal cliff has already had an impact on global markets. On Nov. 10, the euro slid the most in four months versus the yen on concernthe U.S. budget showdown will push the world’s biggest economy into recession and Greece will struggle for more rescue funds.
The European Commissionon Nov. 7 forecast that the17- nation euro economy will expand 0.1 percent in2013, down from a May forecast of 1 percent. It cut the estimate for Germany, Europe’s largesteconomy, to 0.8 percent from 1.7 percent.
The Congressional BudgetOffice has said the U.S. economy would slow by as much as 0.5 percent next year if Congress fails to prevent measures to reduce the deficit from kicking in on Jan. 1.
While Australia , the world’s 12th-largest economy, has shown resilience to the global slowdown by expanding at an annual pace of about4 percent in the first half of the year, Swan said the lack of a political compromise over the fiscalcliff would threaten all economies.
“The impact could stretch far beyond the U.S., striking a severe blow to the fragile global recovery,” Swan said. “No one should underestimatethe urgency of averting this kind of dire scenario.”
To contact the reporter onthis story: Jason Scott in Perth at jscott14@bloomberg.net
To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net
