US finances need urgent action, says former comptroller general

6 Mar 12
The United States government must take decisive action now to reduce its debt and budget deficit and improve financial accounting and reporting, according to former US comptroller general David Walker

By Nick Mann | 25 January 2012

The United States government must take decisive action now to reduce its debt and budget deficit and improve financial accounting and reporting, according to former US comptroller general David Walker.

Speaking in New York on Monday, Walker said the US would reach a ‘tipping point’ in the next three to five years that would determine ‘whether its future was better than its past’.

Walker, who is also founder of the Comeback America Initiative advisory body, said the US had ‘fallen off the wagon’ since 2000 in terms of controlling its rising budget deficit and debt. He added that the official liabilities published by the US government ‘significantly’ understated the real situation, saying: ‘The numbers are big and bad and getting worse by the minute.’

Walker said the US was not exempt from the laws of prudent finance. ‘We need to be more honest with regard to where we are and where we’re headed financially and fiscally. We need to recognise that this has serious potential adverse consequences if we don’t.’

Financial reporting reforms were needed at federal, state and local level, he said. In particular, the federal government should be required to record liabilities for government bonds held in social insurance, such as Medicare, and other ‘trust funds’ to give a full picture of the financial situation.

Immediate action was also needed, Walker said. ‘My view is that the decisions that are made or that fail to be made in the next three to five years will largely determine whether America’s future is better than its past.

‘We are quickly approaching a tipping point. We must not hit that tipping point because once we hit that tipping point, things can change quickly. It’s not a matter of if we’re going to change fiscal and monetary policy, if we’re going to improve accounting and reporting, it’s a matter of when and under what circumstances.’

Walker said the choice was to either make fiscal changes ‘prudently and phased in over time’ or to have to make ‘dramatic and draconian’ changes when a crisis occurs.

This, he said, would have ‘serious adverse consequences in the United States and around the world. I’m going to do my part to make sure we don’t get to that point’.

US President Barack Obama yesterday said he would reduce economic inequality in the US. In his state of the union address to Congress, he said he would ‘restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules’.

Alongside a call for higher taxes on millionaires, he outlined plans to ‘strengthen’ security and to ‘rein in’ the long-term costs of the government’s Medicare and Medicaid programmes, which pay for medical and health-related services for low-income and elderly people.

However, Walker said Obama’s speech was ‘misleading and came up short on substance and realism in certain important areas’.

He added: ‘In particular, the president did not admit that America's financial condition was poor and deteriorating, and he failed to provide a clear path forward to restore fiscal sanity.’

Walker called for ‘comprehensive’ tax reform, including widening the tax base, and for the investments mooted by Obama to be made only if they were ‘properly designed, effectively implemented, and can generate real results’. 

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