Statement by the President Upon Signing the Federal Salary and Fringe Benefits Act of 1966.

I HAVE SIGNED the Federal Salary and Fringe Benefits Act of 1966.

Every Member of Congress voting on this measure voted for it except for one. It is the third increase for Federal workers in 3 years. It makes needed revisions in fringe benefits for Government employees.

A Federal pay raise has real and important fiscal and economic impact. Each 1 percent increase in civilian pay adds $145 million a year to the Federal budget.

We are now in a period of economic prosperity unequaled in our history. As President, I shall spare no effort to keep the Nation flourishing and our economy strong and healthy.

That is why, last March, my proposed was designed to provide a fair and equitable increase in the salaries of Federal employees. At the same time it was designed to support two fundamental considerations of utmost importance to the Nation as a whole:

--The wage-price guideposts, a key tool in the fight against inflation.

--A sound and responsible Federal fiscal policy.

For the most part, the legislation meets these tests. The Chairman of the Council of Economic Advisers has informed me that the percentage increase in compensation provided by the legislation is within the limits of the wage guidepost. In our own house, therefore, we have set an example for labor and management throughout the country. I urge them to follow that example.

This legislation, nevertheless, gives me very serious cause for concern. As finally enacted it provides an effective date for the pay increase 6 months earlier than I had proposed.

Since the civilian pay bill also controls the effective date of the recently passed provision for military pay, the result of the July 1 date is - an addition of almost half a billion dollars to the fiscal year 1967 budget.

These outlays begin at once, and they begin at a most critical time when we are striving to restrain inflationary pressures.

Taken alone, this addition to my budget does not spell the difference between fiscal responsibility and irresponsibility, or between stable prices and inflation. But should it be followed by other actions which add sharply to our spending, the overall result could seriously jeopardize our efforts to maintain sound economic growth without inflation.

I intend to exercise all of my powers to hold spending to a level consistent with fiscal responsibility. For one thing, I will actively continue to search for every economy possible in every Federal program.

There is no more important work than that performed by the men and women who have made public service their life's career. We must attract and retain the talent and excellence needed to conduct the complex affairs of Government. This means fair and just compensation for Federal employees.

One lesson, however, is clear: - higher salaries bring little benefit if the purchasing power of your dollar is eroded by inflation.

We have not built--we have not grown-we have not come this far to allow inflation to disrupt our progress and destroy our gains.

We must set an example of responsibility for our fighting men in Vietnam.

And fiscal responsibility in the conduct of Federal affairs is as important as responsible action by business and labor. For, in the last analysis, we must all be united in a common cause to avoid inflation and sustain and enlarge our prosperity.