Statement About Restraint in Federal Expenditures

THE MOST effective weapon for combating inflation, as I have said repeatedly, is a policy of fiscal and monetary restraint by the Federal Government. Recent increases in consumer prices, while disappointing, only serve to reemphasize the importance of rigor and patience in sticking to that course.

In pursuit of this objective, I have just completed a review of our budgetary policies with my chief economic advisers. It now appears that the deficit for the fiscal year ending this Sunday will be much lower t?ran forecast earlier this year. The overall deficit for the year should be approximately $3 billion, which is $2 billion less than forecast.

At my request, Counsellor Rush, the Director of the Office of Management and Budget, and my other key advisers are determining ways by which we can hold down Federal expenditures for the next 2 fiscal years. We are doing everything we can, under existing legislation, to restrict expenditures in fiscal year 1975 to no more than $300 billion. That figure would be about $5 billion less than our most recent estimates and, if achieved, would also reduce the projected deficit for that year from approximately $11 billion to $6 billion.

For fiscal year 1976, our objective is to bring the budget into balance. In early July, the Director of the Office of Management and Budget will be sending new guidelines to the departments and agencies to achieve that goal.

All of these projections for the Federal budget should be good news for family budgets, but I would stress that they can be realized only if both the Administration and the Congress exert a maximum effort to hold the line. Within the executive branch, we are determined to do everything we can to hold expenditures to a reasonable minimum.

We hope that the Congress will fully cooperate in this effort by rejecting wasteful and inflationary proposals and by resisting suggestions for a tax cut. All of our efforts to conduct an anti-inflationary fiscal policy by holding down expenditures could be quickly frustrated by irresponsibly cutting taxes.

One of the continuing concerns of both the executive and legislative branches must be the rapid growth of "uncontrollable" items in the budget. I am advised that approximately 75 percent of the total outlays for fiscal year 1975 are relatively uncontrollable under existing legislation and that some 90 percent of the increases in spending between the 1974 and 1975 budgets are of this same nature. Although well-intentioned, these items build rigidities into the budget system that make it much more difficult to hold the line on spending.

My recent trip to the Middle East confirmed that the nemesis of inflation is not only widespread in its impact but is also foremost among the concerns of the world's leaders. Growth in economic output is simply not keeping up with the rapid growth in world demands. As part of our effort to increase supplies, at my direction Counsellor Rush and the Chairman of the Council of Economic Advisers have set up a high-level group to evaluate present shortages.

But just as the problems of peace do not lend themselves to instant solutions, the problems of the world economy will also be difficult to overcome. We do not foresee a quick end to inflation. The most recent figures on consumer prices indicate that there are still many risks ahead and that even the lower inflation rate we anticipate by the end of the calendar year will be higher than we would like.

It is clear, nonetheless, that the present policy of fiscal and monetary restraint is the surest means of coping with inflation. It will take time, but it will work if we have the patience and discipline to make it work.